2002/01/01 by Kevin J. Murphy · 2 citations
Business, Management and Accounting · #Corporate Finance and Governance #Financial Reporting and Valuation Research
paper · doi:10.2307/1600633
openalex publication_date 2002/01/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/04/05
The 1990s were a great time to be a top executive in a large U.S. company. Figure 1 shows the median total compensation of chief executive officers in S&P 500 Industrials (that is, the S&P 500 companies excluding utilities and finance firms) from 1992 through 2000. The bar height depicts median total compensation in CPI-adjusted 2001constant dollars, including salaries, realized bonuses, stock options, and other pay.' Over this period, median total compensation nearly tripled from 2.3 million in 1992 to over 6.5 million in 2000. Figure 1 also depicts how the composition of CEO pay has evolved over time.2 The figure shows that the increase in CEO pay in S&P 500 Industrials during the 1990s primarily reflects a dramatic growth in stock options (valued on date of grant), which swelled from 27 percent to 51 percent of total compensation, representing a five-fold increase in dollar terms. Table 1 shows that the option-driven escalation in CEO pay levels is not limited to S&P 500 Industrials. Panel A shows that median pay in S&P 500 Financial Services companies increased 300 percent, from 2.6 million to almost 11 million from 1992 to 2000, while pay in smaller firms (defined as companies in the S&P MidCap 400 and SmallCap 600) more than doubled, from 823,000 to 1.8 million. Median pay in so-called New Economy firms increased 130 percent, from 1.4 million to 3.2 million.3 Panel B shows that the large pay in-