“Taking the Mystery Out of Executive Compensation” with Rensselaer Polytechnic Institute Alumnus Thomas Cooley

Thomas F. Cooley ’65, a professor of economics at New York University, will speak at Rensselaer Polytechnic Institute on Wednesday, March 9. Cooley, who received a bachelor’s degree in management from Rensselaer in 1965, will also be presented with the Rensselaer Alumni Association (RAA) Thomas W. Phelan Fellows Award.  

Cooley, the Paganelli-Bull Professor of Economics at the Leonard N. Stern School of Business at New York University as well as a professor of economics in the NYU Faculty of Arts and Science, will discuss “Taking the Mystery Out of Executive Compensation.” The presentation will be held at 1 p.m.in the Pittsburgh Building, Room 5215, and is open to the public.

“Compensation has been singled out as one of the most important and deeply flawed elements of the incentive system that induced firms to accumulate enormous amounts of risk on their balance sheet,” Cooley said. “In the past two decades, there has been much discussion of executive compensation, many public examples of lavish pay, but no real consensus on the extent of the problem, if indeed there is one. In part, this is because there is a lack of clarity, indeed a lot of confusion, about what the facts are.”

Cooley said that the past two decades have witnessed a sharp increase in income inequality in the U.S., unlike anything we have seen since the 1920s. That increase was followed by the Global Financial crisis of 2007-2009. It is not at all surprising that, in such a climate, executive compensation has come under increased scrutiny.

In his address, Cooley will look at the “whole observable universe of CEOs and top managers and ask what the facts are and if there is something badly wrong with the system.”

“That there are abuses is undisputable but the important question for policy makers is, do we need better governance or government intervention?” Cooley said. “And then, more broadly, I ask how well do compensation arrangements align the incentives of managers with the incentives of shareholders? These are ultimately empirical questions that can be answered with data.”

Cooley is a widely published scholar in the areas of macroeconomic theory, monetary theory, and policy and the financial behavior of firms. He has been a senior adviser and member of the Board of Managers of Standard & Poors since December 2010. He also writes frequent opinion columns for Forbes.com, the Wall Street Journal, and other news media outlets.

Responding to the financial crisis of fall 2008, he spearheaded a research and policy initiative that yielded 18 white papers by 33 NYU Stern professors, published as Restoring Financial Stability: How to Repair a Failed System, (Wiley, 2009). Together with Stern colleagues he edited and wrote the book Regulating Wall Street: The Dodd Frank Act and The New Architecture of Global Finance published by Wiley in November 2010.

Cooley served as dean of the Stern School from 2002 to January, 2010. Before joining Stern, he was a professor of economics at the University of Rochester, University of Pennsylvania, and UC Santa Barbara.

Prior to his academic career, he was a systems engineer for IBM Corporation. A research associate of the National Bureau of Economic Research and a member of the Council on Foreign Relations, he is also the former president of the Society for Economic Dynamics, a fellow of the Econometric Society, and holds an honorary doctorate from the Stockholm School of Economics.

Cooley’s appearance is sponsored by the Vollmer Fries Speaker Series Economics and Finance Joint Research Seminar, presented by the Lally School of Management & Technology in conjunction with the Economics Department of Rensselaer Polytechnic Institute. 

The Vollmer Fries Lecture Series was established by Vollmer Fries, who graduated from Rensselaer in 1924 with a degree in electrical engineering. He led several manufacturing companies and served his country during World War II, serving as deputy chief of the War Production Board. In 1950, Fries became a member of the Rensselaer Board of Trustees.

The Rensselaer Alumni Association Fellows Award was created in1987.  It honors those alumni or friends of Rensselaer who, by their achievements in a chosen profession or endeavor or by their service to the Institute, have set an example for Rensselaer men and women to emulate. To date, 146 RAA Fellows Awards have been presented.