Political Constraints on Executive Compensation: Evidence from the Electric Utility Industry

Paul L. Joskow, Nancy L. Rose, Catherin D. Wolfram

NBER Working Paper No. 4980
Issued in December 1994
NBER Program(s):Industrial Organization

This study explores the effect of regulatory and political constraints on the level of CEO compensation for 87 state-regulated electric utilities during 1978-1990. The results suggest that political pressures may constrain top executive pay levels in this industry. First, CEOs of firms operating in regulatory environments characterized by investment banks as relatively `pro-consumer' receive lower compensation than do CEOs of firms in environments ranked as more friendly to investors. Second, CEO pay is lower for utilities with relatively high or rising rates, or a higher proportion of industrial sales, consistent with earlier research that describes political pressures on electricity rates. Finally, attributes of the commission appointment and tenure rules affect CEO compensation in ways consistent with the political constraint hypothesis: for example, pay is lower in states with elected commissioners than in states where commissioners are appointed by the governor, all else equal. Despite apparently effective pressure to constrain pay levels in this sector, however, we find no evidence of related intra-industry variation in the sensitivity of pay to firm financial performance.

download in pdf format
   (425 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4980

Published: RAND Journal of Economics, Spring 1996, 27(1):165-182. citation courtesy of

Users who downloaded this paper also downloaded* these:
Rebelo and Vegh w5197 Real Effects of Exchange Rate-Based Stabilization: An Analysis of Competing Theories
Joskow and Rose w4976 CEO Pay and Firm Performance: Dynamics, Asymmetries, and Alternative Performance Measures
Lillard w0047 The Distribution of Earnings and Human Wealth in Cycle Context
Horstmann and Markusen w5029 Exploring New Markets: Direct Investment, Contractual Relations and the Multinational Enterprise
Goldin and Libecap Introduction to "The Regulated Economy: A Historical Approach to Political Economy"
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us