Executive Compensation in American Economic History

This chapter documents the evolution of executive compensation in large, publicly traded American corporations over the past century. Executive pay followed a J-shaped pattern. The real value of median total pay declined sharply during World War II, then fell slowly in the late 1940s. From the 1950s to the mid-1970s, executive pay increased at about 0.8 percent annually, but it accelerated quickly from the mid-1970s to the early 2000s, reaching rates of 10 percent in the 1990s. The structure of pay also underwent an important transformation. Until the mid-1980s, the compensation of executives was primarily composed of salaries and bonuses. Since then, the use of equity-based pay has become increasingly widespread. The chapter reviews theories for the long-run changes in executive pay, including rent extraction, returns to talent, and the role of government interventions. None of these alone can account for the patterns in executive compensation over time.