Doctoral Dissertation Research: Investigating the Shift in CEO Hires in the United States

University Of California-Berkeley, Berkeley CA

Investigators

Abstract

SES-1602221 Neil Fligstein Matthew Stimpson University of California-Berkeley Much of the sharp increase in income inequality over the past forty years in the United States is due to surging pay for business executives. This dissertation will contribute to public debate about appropriate pay levels for CEOs by putting the rising demand for "superstar" CEOs into historical context. The research investigates an understudied mechanism contributing to rising executive compensation: the rise in outside CEO hires at large U.S. firms since the middle of the 20th century. The percentage of new CEOs hired from outside the company (rather than promoted from within) more than doubled from 1970 to 2005, and evidence suggests that this upward trend is even starker if the entire post-WWII period is considered. CEOs hired from outside the company tend to have higher compensation than those promoted from within, and hence this rise in outside hires is linked to surging executive pay. To help explain this shift towards outside CEO hires, this dissertation will (1) better document when and in which industries outside CEO hires first became common and (2) investigate how evaluations of these outside hires by the business community have changed since the middle of the 20th century. Many explanations of the steep rise in executive compensation since the 1970s rely on the existence of an external market for CEOs. This external CEO market has expanded dramatically over the past half-century, and this dissertation will investigate the shift towards outside CEO hires among publicly traded firms in the United States. Prior accounts of the emergence of an external CEO market treat outside CEO hires as a stable phenomenon rather than a practice whose meaning has changed and whose acceptance needs to be explained. Many explanations highlight the economic changes that arose in the 1980s, but the pre-1980s period is rarely studied as a comparison case. The research design of this dissertation will address these shortcomings to provide a more compelling account of the shift towards outside CEO hires. The study will (1) construct a data set of CEO successions at 500 large, publicly traded U.S. firms from 1950 to 2015 and (2) use content analysis of newspaper articles and analyst reports to inspect how evaluations of outside CEO hires have changed over time. In addition to clarifying explanations of rising CEO pay, this research will help explain how a value for general management skills became institutionalized in practice, granting those seen to possess these skills with the flexibility to reap greater rewards in the labor market.