BPEA | 1993: Microeconomics 1

Regulatory Constraints on CEO Compensation

Nancy L. Rose,
Rose headshot
Nancy L. Rose Charles P. Kindleberger Professor of Applied Economics - Massachusetts Institute of Technology
Paul Joskow, and
Paul Joskow MIT Economics Department
Andrea Shepard
Andrea Shepard Stanford Graduate School of Business

Microeconomics 1, 1993

THE LEVEL AND STRUCTURE of executive compensation have attracted
considerable academic and public policy interest in recent years. The
enormous human and financial resources controlled by CEOs and the
high compensation levels accompanying these responsibilities make the
market for CEOs especially interesting. Economists have examined
CEO compensation to explore theories of the structure and consequences
of incentive schemes and the nature of monitoring and control relationships
among corporate management, boards of directors, and shareholders.
The public debate has focused on whether CEOs earn “excessive”
compensation, a concern raised by media reports of the largest compensation
payments. As a consequence, some large corporate stakeholders,
labor and consumer representatives, and public officials have
called for imposing political constraints on executive pay.