Marianne Bertrand

First name
Marianne
Last name
Bertrand
Abstract

This paper studies the gender compensation gap among high-level executives in US corpora-
tions. We use the ExecuComp data set that contains information on total compensation for the
top five highest paid executives of a large group of US firms over the period 1992-1997. About
2.5% of the executives in the sample are women. These women earn about 45% less than their
male counterparts. As much as 75% of this gap can be accounted for by the fact that women
manage smaller companies and are less likely to be CEO; Chair, or President of their company.
The unexplained gender gap can be reduced to less than 5% when one further accounts for the
fact that female executives are younger and have less seniority than male executives. Over the
period under study, women have nearly tripled their participation in the top executive ranks and
have also strongly improved their relative compensation, mostly by gaining representation into
the larger corporations. While the absence of a significant conditional gender gap implies that
women and men who hold similar jobs in firms of similar size receive fairly equal treatment in
terms of compensation, it does not rule out the possibility of discrimination in terms of gender
segregation or promotion.

Year of Publication
1999
Number
426
Date Published
10/1999
Publication Language
eng
Citation Key
Industrial and Labor Relations Review, Vol. 55, No. 1, October 2001
Hallock, K., & Bertrand, M. (1999). The Gender Gap in Top Corporate Jobs. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01ks65hc21s (Original work published 10/1999AD)
Working Papers
Abstract

Who sets CEO pay? Our standard answer to this question has been shaped by principal agent theory:
shareholders set CEO pay. They use pay to limit the moral hazard problem caused by the low ownership
stakes of CEOs. Through bonuses, options, or long term contracts, shareholders can motivate the CEO to
maximize firm wealth. In other words, shareholders use pay to provide incentives, a view we refer to as the
contracting view.
An alternative view, championed by practitioners such as Crystal (1991), argues that CEOs set their
own pay. They manipulate the compensation committee and hence the pay process itself to pay themselves
what they can. The only constraints they face may be the availability of funds or more general fears, such
as not wanting to be singled out in the Wall Street Journal as being overpaid. We refer to this second view
as the skimming view. In this paper, we investigate the relevance of these two views.

Year of Publication
2000
Number
430
Date Published
02/2000
Publication Language
eng
Citation Key
The American Economic Review, Vol. 90, No. 2, Papers and Proceedings of the One Hundred Twelfth Annual Meeting of the American Economic Associatio, May, 2000
Bertrand, M., & Mullainathan, S. (2000). Agents with and without Principals. Retrieved from http://arks.princeton.edu/ark:/88435/dsp010v8380572 (Original work published 02/2000AD)
Working Papers
Abstract

We investigate the impact of changes in states’ anti-takeover legislation on executive compensation.
We find that both pay for performance sensitivities and mean pay increase for the firms affected by
the legislation (relative to a control group). These findings are partially consistent with an optimal
contracting model of CEO pay as well as with a skimming model in which reduced takeover fears
allow CEOs to skim more. We compute lower bounds on the relative risk aversion coefficients
implied by our findings. These lower bounds are relatively high, indicating that the increase in
mean pay may have been more than needed to maintain CEOs’ individual rationality constraints.
Under both models however, our evidence shows that the increased pay for performance offsets
some of the incentive reduction caused by lower takeover threats.

Year of Publication
1998
Number
404
Date Published
10/1998
Publication Language
eng
Citation Key
7931
Bertrand, M., & Mullainathan, S. (1998). Executive Compensation and Incentives: The Impact of Takeover Legislation. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01br86b3578 (Original work published 10/1998AD)
Working Papers
Abstract

We empirically examine two competing views of CEO pay. In the contracting view, pay is
used to solve an agency problem: the compensation committee optimally chooses pay contracts
which give the CEO incentives to maximize shareholder wealth. In the skimming view, pay
is the result of an agency problem: CEOs have managed to capture the pay process so that
they set their own pay, constrained somewhat by the availability of cash or by a fear of drawing
shareholders’ attention. To distinguish these views, we first examine how CEO pay responds
to luck, observable shocks to performance beyond the CEO’s control. Using several measures
of luck, such as changes in oil price for the oil industry, we find substantial pay for luck. Pay
responds about as much to a “lucky” dollar as to a general dollar. Most importantly, we find that
better governed firms pay their CEOs less for luck. Our second test examines how much CEOs
are charged for the options they are granted. Since options never appear on balance sheets, they
might offer an appealing way to skim. Here again we find a crucial role for governance: CEOs
in better governed firms are charged more for the options they are given. These results suggest
that both views of CEO pay matter. In poorly governed firms, the skimming view fits better
(pay for luck and little charge for options) while in well governed firms, the contracting view
fits better (filtering out of luck and charging for options).

Year of Publication
2000
Number
431
Date Published
02/2000
Publication Language
eng
Citation Key
7963
Bertrand, M., & Mullainathan, S. (2000). Do CEOs Set Their Own Pay? The Ones Without Principals Do. Retrieved from http://arks.princeton.edu/ark:/88435/dsp016w924b81j (Original work published 02/2000AD)
Working Papers
Abstract

There is a popular perception that increased competitive pressures in U.S. product markets are
turning the employment relationship from one governed by implicit agreements into one governed
by the market. In this paper, I examine whether changes in import competition indeed affect the
use of implicit agreements between employers and workers in a key aspect of their relationship,
wage setting. I focus on the extent to which employers, after negotiating workers’ wages upon hire,
subsequently shield those wages from external labor market conditions. If increased competition induces a switch from these implicit agreements to spot market wage setting, then: (1) the sensitivity of workers’ wages to the current unemployment rate should increase as competition increases; and (2) the sensitivity of workers’ wages to the unemployment rate prevailing upon hire should decrease as competition increases. I find evidence supporting both of these predictions, using exchange rate
movements to generate exogenous variation in import competition. I then show more directly
that increased financial pressure on employers is one mechanism behind these effects - both of the
wage-unemployment sensitivity changes are larger in high leverage industries than in low leverage
ones. Moreover, declines in corporate returns following increased competition directly increase the
sensitivity of wages to the current unemployment rate. There are two general interpretations of
my set of results. Wage flexibility may be a response to competition either because such flexibility
reduces the probability of costly financial distress or because lower corporate profits weaken the
enforceability of implicit wage setting agreements.

Year of Publication
1998
Number
410
Date Published
12/1998
Publication Language
eng
Citation Key
8174
Bertrand, M. (1998). From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01zc77sq10g (Original work published 12/1998AD)
Working Papers
Abstract

Tightly knit extended families, in which people often give money to and get money from
relatives, characterize many developing countries. These intra-family flows may mean that
public policies may affect a very different group of people than the one they targeted. To assess
the empirical importance of these effects, we study a cash pension program in South Africa that
targeted the elderly. We use the variation in pension receipt in three-generation households that
comes from differences in the age of the elder(s) in the households. We find sharp drops in the
labor force participation of prime-age men in these households when the elder women reach 60
or elder men reach 65, the respective ages for pension eligibility. We also find that the drop in
labor supply diminishes with family size, as the pension money is split over more people, and
with educational attainment, as the pension money becomes less significant relative to outside
earnings. Other findings suggest that power within the family might play an important role:
(1) labor supply drops less when the pension is received by a man rather than by a woman; (2)
middle aged men (those more likely to have control in the family) reduce labor supply more than
younger men in the family; and (3) female labor supply is unaffected. These last two findings
also respectively suggest that the results are unlikely to be driven by increased human capital
investment or by a need to stay home to care for the elderly. As a whole, the program seems to
have had large effects on a group—prime age men living with the old—quite different from the
ones it targeted—elderly men and women.

Year of Publication
1999
Number
422
Date Published
09/1999
Publication Language
eng
Citation Key
8204
Bertrand, M., Mullainathan, S., & Miller, D. (1999). Public Policy and Extended Families: Evidence from South Africa. Retrieved from http://arks.princeton.edu/ark:/88435/dsp012z10wq22d (Original work published 09/1999AD)
Working Papers
Abstract

This paper empirically examines the role of social networks in welfare participation. Social theorists from across the political spectrum have argued that network effects have given rise to a culture of poverty. Empirical work, however, has found it difficult to distinguish the effect of networks from unobservable characteristics of individuals and areas. We use data on language spoken to better infer an individual’s network within an area. Individuals who are surrounded by others speaking their language have a larger pool of available contacts. Moreover, the network influence of this pool will depend on their welfare knowledge. We, therefore, focus on the differential effect of increased contact availability: does being surrounded by others who speak the same language increase welfare
use more for individuals from high welfare using language groups? The results strongly confirm the
importance of networks in welfare participation.
We deal with omitted variable bias in several ways. First, our methodology allows us to include
local area and language group fixed effects and to control for the direct effect of contact availability; these controls eliminate many of the problems in previous studies. Second, we instrument for contact availability in the neighborhood with the number of one’s language group in the entire metropolitan area. Finally, we investigate the effect of removing education controls. Both instrumentation and removal of education controls have little impact on the estimates.

Year of Publication
1998
Number
405
Date Published
10/1998
Publication Language
eng
Citation Key
The Quarterly Journal of Economics, Vol. 115, No. 3, Aug., 2000
Bertrand, M., Mullainathan, S., & Luttmer, E. (1998). Network Effects and Welfare Cultures. Retrieved from http://arks.princeton.edu/ark:/88435/dsp019g54xh665 (Original work published 10/1998AD)
Working Papers
Abstract

Anecdotal evidence suggests that uncontrolled managers let wages rise above competitive levels.
Testing this popular perception has proven difficult, however, because independent variation in the
extent of managerial discretion is needed. In this paper, we use states’ passage of anti-takeover
legislation as a source of such independent variation. Passed in the 1980s, these laws seriously
limited takeovers of firms incorporated in legislating states. Since many view hostile takeovers as
an important disciplining device, these laws potentially raised managerial discretion in affected
firms. If uncontrolled managers pay higher wages, we expect wages to rise following these laws.
Using firm-level data, we find that relative to a control group, annual wages for firms incorporated
in states passing laws did indeed rise by 1 to 2% or about $500 per year. The findings are robust to a
battery of specification checks and do not appear to be contaminated by the political economy of the
laws or other sources of bias. Our results suggest that discretion significantly affects wages. They
challenge standard theories of wage determination which ignore the role of managerial preferences.

Year of Publication
1998
Number
406
Date Published
10/1998
Publication Language
eng
Citation Key
The RAND Journal of Economics, Vol. 30, No. 3, (Autumn, 1999
Bertrand, M., & Mullainathan, S. (1998). Is There Discretion in Wage Setting? A Test Using Takeover Legislation. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01c821gj78n (Original work published 10/1998AD)
Working Papers