UVA Darden Researcher Delivers New Evidence for U.S. CEO Pay Critics

01 February 2013

University of Virginia Darden School of Business study finds that American CEOs are worth their paychecks.

The number of zeros in paychecks of American CEOs often comes under fire. Many believe that American CEOs take home too much money. American workers who face stagnant to lowering wages in a tough economy have argued the point, as have professional firms, which emphasize that CEOs in America earn more than their counterparts abroad.

Do they?

“No,” said Darden Professor Pedro Matos. In his upcoming paper, “Are U.S. CEOs Paid More? New International Evidence,” Matos and his colleagues investigated CEO salary data from more than 1,600 U.S. and international firm across 13 European countries. Without the limitations of past domestic and global compensation disclosure rules, the researchers learned not only do American CEOs earn salaries comparable to those of international CEOs, but many U.S. CEOs earn a portion of their pay based on the value they create for shareholders.

The results will appear in a future edition of The Review of Financial Studies .

Matos reported in “Harvard Law School Forum on Corporate Governance and Financial Regulation” blog that paychecks of U.S. CEOs are quite reasonable. He took into account characteristics such as board structure, firm type and ownership structure.

“Initially, U.S. CEO salaries appear twice as large as salaries of CEOs in other countries, but one is really comparing apples to oranges due to differences in the way that U.S. firms operate compared to their international counterparts,” said Matos.

According to Matos, American-based firms lean toward institutional ownership and independent boards, which leads to better oversight.

“We think it’s a sign of good corporate governance when firms are monitored closely by institutional owners as well as independent board members. These push for CEO pay to be tied to shareholder performance,” said Matos. “It should cause us to question the belief that U.S. CEO pay is excessive.”

Matos’ study also shows that competitive international firms now offer CEO salary packages that are comparable to those from U.S. firms.

“Many of the non-U.S. firms vie for the same capital, customers and talent as U.S. firms that operate globally,” Matos added. “We feel that our research presents grounds for critics to take a second look at U.S. CEO salaries.”

Nuno Fernandes, professor of finance at IMD Business School; Miguel A. Ferreira, professor of finance at Nova School of Business and Economics; and Kevin J. Murphy, professor of finance at the University of Southern California, Marshall School of Business, were co-investigators for this project.

Matos’ research focuses on international corporate governance and the growing importance of institutional investors in financial markets worldwide.

About the University of Virginia Darden School of Business

The University of Virginia Darden School of Business delivers the world’s best business education experience to prepare entrepreneurial, global and responsible leaders through its MBA, Ph.D., MSBA and Executive Education programs. Darden’s top-ranked faculty is renowned for teaching excellence and advances practical business knowledge through research. Darden was established in 1955 at the University of Virginia, a top public university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.


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Darden School of Business
University of Virginia