Home » There is evidence that CEO compensation follows a quot;power lawquot; with respect to size of firm:

There is evidence that CEO compensation follows a quot;power lawquot; with respect to size of firm:

There is evidence that CEO compensation follows a “power law” with respect to size of firm: , where is total CEO compensation inclusive of stock options and  is measured by, say, stock market valuation or total assets. There is strong evidence that  is approximately equal to 1/3. 

Suppose that is 500 so that we have



  • is measured in millions of dollars, and
  • is total firm assets measured in billions of dollars

           A. Use equation (1) to calculate  for a firm with total assets of 4 billion dollars. Then calculate the simple proportional change in  when  increases from 4 billion to 6 billion dollars. In calculating values of  and the simple proportional change, feel free to round your answers to three decimal places.

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