Is the world of Swedish CEOs a meritocracy?

Renee B. Adams, Matti Keloharju, and Samuli Knüpfer have a new paper:

This paper analyzes the role three personal traits — cognitive and non-cognitive ability, and height — play in the market for CEOs. We merge data on the traits of more than one million Swedish males, measured at age 18 in a mandatory military enlistment test, with comprehensive data on their income, education, profession, and service as a CEO of any Swedish company. We find that the traits of large-company CEOs are at par or higher than those of other high-caliber professions. For example, large-company CEOs have about the same cognitive ability, and about one-half of a standard deviation higher non-cognitive ability and height than medical doctors. Their traits compare even more favorably with those of lawyers. The traits contribute to pay in two ways. First, higher-caliber CEOs are assigned to larger companies, which tend to pay more. Second, the traits contribute to pay over and above that driven by firm size. We estimate that 27-58% of the effect of traits on pay comes from CEO’s assignment to larger companies. Our results are consistent with models where the labor market allocates higher-caliber CEOs to more productive positions.

In other words, Swedish CEOs are a pretty impressive lot.  Scott Sumner offers some related remarks on American CEOs.


I once worked for a company in which the two executives who led our sales force were both significantly shorter than average. Our sales force did a great job. I've sometimes wondered whether there's something about being short that produces a great salesman.

Ask Mike Bloomberg

I read the Sumner piece. It doesn't speak much about the capabilities of American Boards of Directors if they're using high pay as a shorthand for identifying a quality CEO, and treating good CEOs as if they're fungible between businesses. In fact, the type of investors driving this stuff in general seem prone to Cult of the CEO beliefs, maybe because it's the easiest form of leverage they have over a firm (sort of like supporting a dictator because he's "our guy"). Meanwhile, there are a lot of German and Japanese big businesses that seem to be doing great with CEOs earning much less.

I tend to think part of it is driven by the tax benefits of performance based compensation for CEOs. It's a tax-write-off to give your CEOs stock options as compensation.

Then again, if you have a very short horizon for your investment in the company, then you probably don't care how competent the CEO is as long as he or she inflates the stock value long enough for you to make money and sell out before the company starts tanking and he or she gets fired for someone else.

re: Sumner post:

1) Goldman Sachs doesn't own the bldg that houses its HQ because > quarter century ago companies engaged in 'sale & leaseback', to shrink their balance sheets and boost RoA. So, GS doesn't hire janitors, because the actual building owner has outsourced this to a facilities management service provider [who's outsourced cleaning svcs itself]. GS in the janitor business? Lots of laughs over at 200 West Street, today! Guess Scott hasn't ever had a 'real' job, where you work in a company and generate revenue? Megan McCardle wouldn't craft something like this. Pathetic.

2) " This shows that CEOs have a huge impact of stock valuations". Because companies' stock prices swing wildly for one day upon news? Barry Ritholtz on the topic, from 2009:

"One of the collective fallacies our culture operates under is the delusion that the market is some kind of astute forecasting machine. It is not — it represents the collective wisdom of 10 million panicked monkeys. That millions of slightly clever, pants wearing primates can combine their collective ignorance, their intellectual foibles, biases and false beliefs somehow into something resembling intelligence was one of the false beliefs of the era. Unfortunately, this is a condition the monkeys are prone towards (Witch burning, bloodletting, organized religion, etc.)".

Thanks, Scott. Its 2014.

3) "If they aren't paying obscene salaries then the board of directors isn't doing its job". Actually, Sumner is doubtless familiar with the work that shows that these are inversely coordinated:
But, hey, way to suck up to the 0.1%!

4) "Think how much Sony would have benefited in the past 10 years if it had had the Samsung management team" Ahh, the Ominipotent CXO Fallacy. As Jim Collins has documented over the last 25 years, the accent is on culture, not 'heroes' flown in by executive search firms:

But, shucks, I'm indebted to you for linking to the Sumner post, if only for this:

" overflowing toilet in the men's or lady's room is much greater (in dollar terms; lost consumption to employees or lost business to unimpressed clients) than at a McDonald's rest room. Thus Goldman Sachs should pay more, to ensure they get the best secretaries and the best janitors"


WIth regard to the latter, Google has decided to dump their outside contractor for security guards and bring the jobs in-house.

This greatly improves the compensation for the guards and may result in security guards more highly motivated to do a good job.

"it represents the collective wisdom of 10 million panicked monkeys"


"Guess Scott hasn’t ever had a ‘real’ job, where you work in a company and generate revenue?"

Ravi Kanbur ( has argued that development economists should regularly go on immersion trips. Perhaps this should apply to all economists and pundits. So,

- Scott could spend a month working in an HR department and another in an operational one. No-one really knows exactly what people's MRP is. Competition for workers should ensure that they're paid something commensurate with their MRP, but I'd be surprised if they made that exact amount.
- Bryan could put his "addiction is a choice" theory to the test. He could spend three months getting hooked on alcohol and cocaine and then show his superior power of will by going cold turkey. Add another three months meeting *actual* poor people and mental health professionals to whom he could explain his theories about poverty and mental illness.

Not having read the link but... The blurb seems to imply that the results of psychological tests taken by Swedish military recruits are public information (linkable by name). Could this really be true? Oh my.

Scandinavian countries have a laudable tradition of making comprehensive national databases from the health care system and mandatory military service available for "big data" research for the public good, but not for private use. Extraordinarily low levels of corruption, and high trust in a historically homogeneous society, as well as the practical reality that the databases exist because single government agencies collect them, make the public trusting enough to allow this to be done without resort to anonymizers for the researchers (so long as the results are anonymous).

The U.S. has allowed similar research in cases where it has had comparable databases, for example, of military recruit entrance exams (famously used in the research underlying the book, "The Bell Curve"), IRS tax collection data, probate records, and older census data.

Generally encouraging. I'd be curious to know if CEOs who are company founders differ in profile from those who are hired to run existing corporations.

Exactly who assigns the tallest Swedes to the largest firms?

What if a very large firms wants to hire a short management trainee?

Where is the affirmative action for short people?

> In other words, Swedish CEOs are a pretty impressive lot.

Not when you compare pay to the numbers: they're only in the top decile for various traits, but their pay (even in Sweden) is probably much higher than that...

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