CEO Pay and Appointments: A Market-Based Explanation for Recent Trends

Abstract

CEOs increased from an average of $700,000 in 1970 (in 2002-constant dollars) to over $2.2 million in 2000.1 During the same period, the ratio of CEO cash compensation to average pay for production workers increased from about 25 in 1970 to nearly 90 in 2000.2 The most prevalent explanation in the popular press for this trend is the fat cat theory, a variant of which has been espoused among academics by Lucian Bebchuk et al. (2002).3 Accord-