chapter  15
14 Pages

Explaining high US CEO pay in a global context: An institutional perspective

WithDAVID B . BALKIN

Chief Executive Officers (CEOs) in US firms are the world’s highest paid top executives. There is substantial evidence to back this claim up. A 1997 study of CEO pay in 23 countries in mid-sized firms with $250 million annual revenues revealed that CEOs in the USA were paid nearly double the amount of pay received by CEOs in all other developed countries (Murphy, 1999). In the USA, CEOs received total annual pay of $901,000 compared to $524,000 for France, $490,000 for the United Kingdom, $424,000 for Germany and $398,000 for Japan. In 2003, a global pay survey of companies with annual revenues of $500 million conducted by Towers Perrin, a human resource consulting firm, showed that the CEOs in the USA earned $2,250,000 in total annual pay compared to $954,000 in Germany, $830,000 in the United Kingdom and $735,000 in France (Bordet, 2003). In yet another global pay survey, this one conducted in 2005 by Mercer Human Resource Consulting of the largest public firms in several countries, the median annual pay for CEOs in the USA was $6.8 million compared to that of global counterparts with $4.3 million in the United Kingdom, $3.0 million in France and $470,000 in Japan (Fabrikant, 2006). All the firms in the Mercer study reported over $1 billion revenues in 2005. In all these studies CEOs in the USA fared better in the pay arena than their global counterparts after controlling for the size of the organization. Further, a meta-analysis of CEO compensation research by Henry Tosi and his colleagues (2000) indicated that company size was by far the most potent determinant of CEO pay.