French CEOs' Compensations: What is the Cost of a Mandatory Upper Limit?

Abstract

In the middle of the 90s, the sharp increase in globalization and the last privatization wave have promoted the shaping of a market for executives in France. Characteristics of this market are estimated for France and a competitive model is simulated in order to assess to what extent such a model can reproduce the observed chief executive officer (CEO) compensations. The size elasticity of CEOs' compensations in France is equal to 0.5 and justifies a large magnitude in compensations. To moderate these compensations, a wage cap is often called for not only by opinion and the European Left but also, more surprisingly, by representatives of shareholders. The cost of this policy is evaluated in this job assignement model and the lobbying of shareholders is investigated and explained above some thresholds. (JEL codes: J31, J33, D33, D41) Copyright The Author 2010. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.