International Trade and Investment Program Meeting, Spring 2026

Why It Matters

Results imply compensation design and corporate governance should account for interactive shock environments and the outsized, undercompensated value of experienced CEOs, affecting investor valuation, labor markets, and policy on executive pay. Practitioners and regulators may need to rethink incentive structures across public and private firms.

Summary

An academic presentation outlined a model combining assignment and principal–agent frameworks within a trade model to study how global shocks reshape CEO pay. The speaker derives a value function incorporating firm heterogeneity and interactive, time-varying shocks that affect both firm size and CEO effort, producing three testable predictions: pay levels (better CEOs in larger firms and pay premia on promotion), pay structure (volatile firms should pay higher incentive shares when shocks interact with effort), and returns to ability. The analysis uses unique Danish matched worker–firm data covering public and private firms and finds experienced CEOs create far more firm value than their pay reflects. The work challenges standard results on volatility and pay-share relationships and highlights how shocks can magnify CEO ability.