Outraged by Compensation: Implications for Public Pension Performance

Alexander Dyck, Paulo Manoel, Adair Morse

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


Public pension boards fear inciting stakeholder outrage if they compensate internal investment managers with market-level salaries. We derive theoretical implications in an agency-portfolio-choice model motivated by inequality aversion. In a global sample, relaxing the effect of outrage on contracting leads to an average annual incremental value-Added of $49 million generated through 11 bps in higher excess returns from risky assets, at the cost of $302,429 in additional compensation. Governance reforms that address outrage by reducing political appointees or requiring independent skills-based boards can increase the annual value-Added. These findings are orthogonal to costly political distortions from underfunding and pay-To-play schemes. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Original languageEnglish
Pages (from-to)2928-2980
Number of pages53
JournalReview of Financial Studies
Issue number6
StatePublished - Jun 1 2022

Bibliographical note

Publisher Copyright:
© 2021 The Authors 2021. Published by Oxford University Press.


  • G11
  • G23
  • G3

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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