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- FOOTNOTES Some commentators (e.g., Roberts, 2011) imply that Jensen and Murphy’s empirical evidence is not contrary to agency theory, but suggests instead that it means the (normative) recommendations of agency theory have not been followed in practice. An argument in this form, implying that the absence of two factors (incentive pay and high performance) can be interpreted as evidence of a causal connection between the two phenomena (so that more of the first factor will necessarily lead to more of the second) is hardly justified. It also appears to confuse the positive theory of agency (which should be capable of explaining the world as it is) with normative theory. In practice, as argued long ago by Herbert Simon in 1957 and demonstrated empirically by Gabaix and Landier in 2008, CEO pay is much more closely correlated with company size than company performance.
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