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Do Professional Negotiators Extract Rents on Behalf of their Client CEOs?
Shivaram Rajgopal, University of Washington - Seattle
Daniel Taylor, Stanford University
Mohan Venkatachalam, Duke University
ABSTRACT. The paper investigates the influence of professional negotiators (agents) on CEOs’ compensation and employment contracts. Although these agents negotiate better employment contracts on behalf of their client CEOs relative to a control sample, several of these contractual differences are attributable to firm and executive characteristics. First year compensation for CEOs who hire these professional negotiators is higher by about $12.8 million relative to control firms. Of this amount, $4.5 million is attributable to proxies for the candidate CEO’s talent and opportunity wage. Thus, a significant portion of this excess compensation paid to these CEOs remains unexplained although such CEO's pay is generally more sensitive to performance relative to control firms. Further analysis suggests that firms run by CEOs who use professional negotiators do not under-perform in the future, suggesting that professional negotiators are not extracting rents at the expense of firm's shareholders.
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