Are Public Sector CEOs Di¤erent? Leadership Wages and Performance in Schools

This paper uses a unique data set to investigate the link between the pay and performance of school principals. It is frequently argued that public sector CEOs are paid like bureaucrats with little reward for good performance. However, this ignores the possibility of implicit labor market incentives. We show that pay is indeed linked to publicly observable performance measures. Moreover poorly performing principals face a higher chance of being replaced. These …ndings for the public sector parallel what has been found by looking at the pay and performance of private sector CEOs. We are grateful to Joan Wilson and Ifty Hussain for excellent research assistance. We would like to thank the (then) Department for Education and Skills for part funding this project and for providing access to the administrative data we utilise and the Economic and Social Research Council for support under the Public Services Program. Thanks also go to Mono Chatterji, Rick Hanushek, Andrew Oswald, Paul Peterson, Joan Wilson and participants in a number of presentations for comments on earlier drafts of the paper.