Pre-CEO Executive Skill Accumulation, Firm Size and Pay Limits in the CEO Market
Abstract
This paper studies costly pre-CEO executive skill accumulation by executives, followed by stable matching between firms and CEOs. An increase in the heterogeneity of firm size relative to executive type induces a decrease in the informational effect of skill accumulation, resulting in improvement of efficiency. It shows that the CEO pay limit changes not only equilibrium pays to high paid CEOs but equilibrium pays to all CEOs. Severe CEO pay limits make CEO pay discontinuous at the top, so redistribution of earnings at the low-end of firm-CEO matches comes at the cost of distorting high ability executives' equilibrium skill accumulation.