Corporate executives comprise a small but important part of the labor market. As the main decision makers in public corporations, top officers have been responsible for a large fraction of assets in the economy ever since the separation of ownership from control at the turn of the century. Although finance and labor economists have analyzed the market for managerial personnel extensively during the past 20 years, far less is known about the evolution of the market during earlier times. This project fills in the gap by constructing the first consistent panel dataset on executive compensation to extend from the 1930s to the present. These data are essential for understanding the evolution of managerial pay and the rise of professional managers over the course of the twentieth century. Intellectual Merits Although recent changes in executive compensation are well documented, an understanding of longer run trends has been hampered by a lack of consistent data. Previous researchers have studied managerial pay for short periods of time, but variation in methodologies across studies prohibits using these data to construct consistent trends over a long horizon. This project solves this problem by collecting data on executive compensation from historical corporate reports. Due to requirements imposed by the Securities and Exchange Commission, these documents have provided annual information on the compensation of top officers in publicly traded firms ever since the late 1930s. Because the reporting requirements have not changed significantly over time, these data will allow for different components of executive pay to be measured consistently for most of the twentieth century. Obtaining consistent estimates of both the level and components of managerial pay will contribute a significant new insight into how the market for corporate executives has changed over time. Furthermore, this project will be the first to provide consistent estimates of how the relationship between pay and firm performance has changed over time, thereby improving our understanding of the optimality of contracts and their effects on the long-run performance of the economy. Finally, this project will shed light on the interaction between tax policy and trends in income inequality during the past 70 years. By studying how top officers have been able to shift income out of taxable forms during different tax regimes, this project will advance the current knowledge on the behavioral responses to taxation from top income earners. Broader Impact Historical data on executive compensation are necessary to address numerous questions that span a wide range of subjects including the market for managers, organizations, contract theory, corporate finance, and tax policy. Because these topics exceed the scope of the proposed research agenda, the data will be of interest to many other social scientists. Once this project is complete the dataset will be made available to the public, providing other researchers with an opportunity to expand their own work. This project also has several important implications for public policy. An improved understanding of how high-income earners respond to tax rates can inform the discussion on optimal tax policy, tax revenues, and income redistribution. Corporate executives have always been among the top 1% of the income distribution. Thus, understanding the response of these high income individuals to changes in tax rates is critical for determining whether changes in tax policy will have the intended consequences. Moreover, a study on the long-run trends in executive pay adds an important historical perspective to the unprecedented levels of income inequality between executives and workers that have been experienced during the past decade. The effects of past policies on the absolute and relative levels of pay should be an important consideration in the current debate concerning the recent excesses in executive compensation.
