Article of the Day: Selections from USpace
CEO pay and the Lake Wobegon effect is my new favorite article in USpace. Rachel Hayes and Scott Schafer, both from the David Eccles School of Business, wrote the paper in 2007 as a way to explain recent CEO pay increases at U.S. firms. They take a game theory model and apply it to what many in the business press refer to as “The Lake Wobegon Effect.” And what’s the Lake Wobegon effect? Most boards want to make sure they look strong, or, at least above average (as are all the kids from Garrison Keillor’s Lake Wobegon), so a CEO’s pay will increase at the same rate as a peer company’s even if the CEO performed poorly. For someone who is mystified by the business world, I find this to be comfortingly human. And their conclusion? Well, read for yourself http://content.lib.utah.edu/u?/ir-main,7291 The paper is part of a series from the Institute of Public and International Affairs (IPIA). To see other papers from IPIA, go to http://bit.ly/bOOPAT
