Harwell Wells

Executive Pay: What Worked?

CEO pay is a controversial issue in America but there was a time, often overlooked today, when chief executives were not paid nearly as much as they are now. From 1940 to the mid-1970s executive pay was modest by today’s standards even though U.S. business was generally thriving. What worked to keep executive pay in check? Economist Thomas Piketty and others credit high marginal income tax rates, leading to calls for a return to a similar tax regime. This paper casts doubt on the impact tax had and also shows that neither the configuration of boards nor shareholder activism played a significant role in constraining executive pay. It emphasizes instead the roles played by strong unions, a different and more circumscribed market for managerial talent, and social norms, explanations that do not easily lend themselves to generating modern policy prescriptions.

U.S. Executive Compensation in Historical Perspective

Executive compensation is one of the central issues of modern corporate governance, but its history has received surprisingly little attention. This draft chapter for the forthcoming Research Handbook on Executive Compensation (Jennifer Hill & Randall Thomas, eds.) surveys the development of, and conflicts over, U. S. executive compensation across the twentieth century, paying particular attention to political, social, and legal contexts sometimes underplayed in accounts more tightly focused on pay level and composition. It closes by identifying several as-yet unresolved puzzles raised by the history of executive compensation.