Earlier today, as Bloomberg News reports, “Wall Street executives defended their compensation against criticism from lawmakers, who faulted them for pocketing hundreds of millions of dollars while shareholders lost billions on subprime mortgages.

“Countrywide Financial Corp. Chief Executive Officer Angelo Mozilo, and former CEOs Charles Prince of Citigroup Inc. and Stan O’Neal of Merrill Lynch & Co., appearing today at a House Oversight and Government Reform Committee hearing in Washington, said the pay packages justly reflected their performance.”

But committee chairman Henry Waxman, the California Democrat, expressed concern. “Most Americans live in a world where economic security is precarious,” Waxman said. “But our nation’s top executives seem to live by a separate set of rules.”

Congressman Waxman might be interested to hear about the research done by Xavier Gabaix and Augustin Landier, two economists at New York University’s Stern School of Business who have examined rising CEO pay. Their conclusion? “The sixfold increase in CEO pay between 1980 and 2003 can be attributed to the sixfold increase in market capitalization of large U.S. companies during that period.” 

The Gabaix-Landier paper can be found here. Laura Vanderkam discusses it in the current issue of THE AMERICAN.