July 10th, 2013
Pinko-squish that I am, I’m the last guy in the world to spring to the defense of CEOs, because I think you can make a pretty good argument that CEO compensation is distorted by so many externalities that it represents “true market value” in about the same way that the price of gas in any given locality represents the price of crude. Matt Yglesias isn’t helping though. Here’s a take-down of his recent post on CEO compensation in America vs. Europe. Spoiler alert: There’s a whole body of research on exactly this subject which Yglesias seems to know nothing about:
The entire notion that American chief executives earn a lot more than their foreign counterparts is largely misplaced. A study that looked at this question last year found that what appeared to be the great variance in CEO pay between the U.S. and Europe is largely illusory.
After controlling for firm size, ownership, and board structure, all characteristics that often differ between U.S. and international companies, the gap is reduced, with U.S. executives earning only a 26 percent premium. And when the analysis adjusts for the greater use of stock options and share awards in the U.S., the pay premium is reduced to an economically modest 14 percent. Maybe that would be a nice raise for a European CEO, but it’s not likely enough to induce him to cross the Atlantic and emigrate to the U.S.
The fact is that U.S. companies are more likely to be owned by institutional owners and to have independent boards. These features of the American corporate ownership are closely linked to a larger fraction of compensation being paid in stock, for the very good reason that diversified institutional shareholders are interested in a rising stock market and want to provide incentives for stocks across the board to rise. Concentrated ownership—by families, by the government, by banks—is far more common outside the U.S. and apparently has an effect on how CEOs are paid.
Pedro Matos, an associate professor of business administration at the University of Virginia’s Darden School of Business, was one of the authors of that study.
“In other words, the world is flat for CEOs, or nearly so,” Matos wrote in Forbes earlier this year.
Knowing stuff is boring.
Bonus nugget for the Juicebox clip file: Don’t forget this passage from CJR’s profile of Ezra Klein:
“If you wanted to tell the story of my coming up, Matt Yglesias is the key figure,” Klein says. “Matt’s blog was a major inspiration for me, because he was a college student and he did this kind of data-driven, very careful work that appealed to me.”
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