CEO Compensation Volatility Over the Business Cycle

Open Access
Stancato, Brendan Robert
Area of Honors:
Bachelor of Science
Document Type:
Thesis Supervisors:
  • Theodore Papageorgiou, Thesis Supervisor
  • David Shapiro, Honors Advisor
  • CEO
  • Business Cycle
  • Compensation
  • Real wages
  • Salary
  • Bonus
This paper analyzes the differences in compensation volatility between the CEOs of publicly traded companies and US employees over the business cycle for the period from 2000 to 2009. Using data from the Current Population Survey for employees and Capital IQ for CEO compensation, we use statistical analysis to compare the impact of business cycle changes on pay levels. The findings of this paper show that CEO pay levels face greater volatility. Business cycle measures such as change in GDP and unemployment are found to have a statistically significant impact on CEO compensation, but little impact on average employee wages. Recession years, such as 2001 and 2007, also were found to have greater impacts on CEO pay levels compared to average employee wages. This difference is likely the result of the structure of modern CEO pay packages that include stock and options. These pay packages are intended to align CEO and shareholder interests, but reflect market fluctuations as a result. While CEOs earn more in absolute terms, they face a greater relative impact from changes in the economy.