Pedro Ortín Ángel

The compensation of Spanish executives: A test of a managerial talent allocation model

Abstract This paper provides empirical evidence in support of the theory on how managerial capabilities are allocated in hierarchical organizations developed by Rosen (Bell Journal of Economics, 1982, Autumn, 311–323). The evidence is obtained from a sample of Spanish firms and covers managers at the top and middle positions in the hierarchy. Most previous empirical work has related Rosens model to the elasticity of compensation to size obtained estimating a structural model that explains the salary of the managers as a function of the size of the firm. But since compensation and size are both endogenous variables, the elasticity estimated by this way will be inconsistent. Using human capital variables as proxies of managerial talent, we estimate the reduced form of the model and therefore the inconsistency problem is overcome.