Explaining the International CEO Pay Gap: Board Capture or Market Driven?

97 Pages Posted: 22 Nov 2002 Last revised: 4 May 2017

See all articles by Randall S. Thomas

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: November 14, 2002


The large gap between American CEO pay and foreign CEO pay is one of the biggest puzzles in executive compensation. Recent scholarship has suggested that it is the result of board capture. This theory claims that the pay gap arises because in the U.S. passive friendly directors award their CEOs huge pay increases, while in other countries tight-fisted control shareholders suppress CEO pay levels.

This paper criticizes board capture theory and then develops four market-based theories that offer persuasive alternative explanations for the international CEO pay gap. It argues that market forces will determine whether the pay gap will disappear and that current proposals for government intervention will be at best ineffective, and more likely counterproductive.

JEL Classification: K2, G3, J3, J33, J4, K22, M5

Suggested Citation

Thomas, Randall S., Explaining the International CEO Pay Gap: Board Capture or Market Driven? (November 14, 2002). 57 Vanderbilt Law Review 1171 (2004), Vanderbilt Law and Economics Research Paper No. 02-19, Available at SSRN: https://ssrn.com/abstract=353561 or http://dx.doi.org/10.2139/ssrn.353561

Randall S. Thomas (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics