What You See is What You Get (Paid)
Draft available soon. This paper presents a simple model of CEO compensation where salary is dependent on the internal characteristics of the firm and where the salary of one CEO exerts a positive externality on the salary of others. CEOs are considered interchangeable but costly to recruit outside the market, and are randomly matched with firms until they accept the firm’s offer. Since different firms have different levels of monitoring and prestige, and being part of different industries, CEOs enjoy different levels of private benefit when shirking in different firms. Using this model, we can shed light on how the degree of transparency affects CEO compensation. In equilibrium, some of the CEOs have their participation constraint binding while others have a binding incentive compatibility constraint. A change in the degree of transparency moves the participation constraint, inducing a change in wages for some CEOs. We find that the salary is more likely to increase than it is to decrease.