UC Davis Agricultural and Resource Economics

Lucas Davis, University of California, Berkeley

Are Energy Executives Rewarded For Luck?

Date and Location

Wednesday, November 28, 2018, 3:30 PM - 5:00 PM
Giannini Library Conference Room, 4101 Social Sciences and Humanities


In an influential paper, Bertrand and Mullainathan (2001) show that energy executives are rewarded for high oil prices, which they term pay-for-luck. Almost twenty years later, performance-based pay as a portion of executive compensation has nearly doubled; total executive compensation has also nearly doubled; and new disclosure laws and tax rules have changed the regulatory landscape. In this paper, we examine whether their results and their interpretation continue to hold in this changing environment. We find that executive compensation at U.S. oil and gas companies is still closely tied to oil prices, indicating that executives continue to be rewarded for luck despite the increased availability of more sophisticated compensation mechanisms. This finding is robust to including controls for capital and labor, and it holds not only for total executive compensation but also for several of the separate individuals components of compensation, including bonuses. Moreover, we show there is less pay-for-luck in better-governed companies, and that pay-for-luck is asymmetric – rising with increasing oil prices more than it falls with decreasing oil prices. These patterns are more consistent with rent extraction by executives than with maximizing shareholder value.

Contact Us

2116 Social Sciences and Humanities
University of California, Davis
One Shields Avenue
Davis, CA 95616

Main Office: 530-752-1515
DeLoach Conference Room: 530-752-2916
Main Conference Room: 530-754-1850

Student Advising Services: 530-754-9536