The Rise in Executive Compensation - Consequence of a ‛War for Talents‛?

43 Pages Posted: 6 Jul 2010

See all articles by Katja Rost

Katja Rost

University of Zurich - Institute for Organization and Administrative Science

Date Written: July 5, 2010

Abstract

The rise in executive compensation has triggered a great amount of public controversy and academic research. Critics have referred to the salaries paid to managers as “pay without performance”, while defenders have countered that the large salaries can be explained by a “war for talents”. This research tests whether a war for talent provides an explanation. The rise in executive compensation in recent years is explained by the assumption that, over the past decades, general managerial skills have become more important relative to firm-specific knowledge for the production of managers. A shift toward transferable managerial skills requires higher compensation, particularly in large firms, to attract and retain managerial talents. Relying on an internationalized and deregulated managerial labor market, i.e. the Swiss banking sector, the empirical findings confirm that a shift toward transferable managerial skills in large firms is indeed an explanation for the rise in executive compensation. However, the shift towards transferable managerial skills in large firms does not improve firm performance, giving no supporting evidence for a war for talent. It is discussed how transferable managerial skills may used to legitimize higher compensation at the top, e.g. by promulgating definitions of talent in elite labour markets.

Keywords: Executive compensation, efficient labor market view, transferable skills, outside options

JEL Classification: J33, G30, J41

Suggested Citation

Rost, Katja, The Rise in Executive Compensation - Consequence of a ‛War for Talents‛? (July 5, 2010). Available at SSRN: https://ssrn.com/abstract=1634799 or http://dx.doi.org/10.2139/ssrn.1634799

Katja Rost (Contact Author)

University of Zurich - Institute for Organization and Administrative Science ( email )

Plattenstrasse 14
CH-8032 Zurich
Switzerland

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