Bertrand and Mullainathan (2001), in their investigation, took an example of the oil industry and studied the industry performance and the CEO’s actions on whether the industry actions are within or beyond his control of influence. They found out that when the oil prices went up the pay went up and vice versa. This indicates a pay for luck or being lucky and the industry activities being beyond the CEO’s control. They also found that the next five years had the oil prices and pay moving in opposite directions, indicating that the CEO’s are mostly rewarded for pay for good luck, but they are not necessarily punished for bad luck. In addition it is noticed that a CEO is not able to influence the entire industry in which the company operates, but has limitations to influence his own firm’s performance within the industry and the economic condition.
This indicates that the CEO is not being paid for bringing about a major change in the entire industry, but he is just being paid for being lucky and steering the company according to the direction of the entire market and the economic condition to operate business. This is evident by the market forces that change their positions which are actually not the causation of the CEO’s actions. Thus, if this nullifies the CEO’s action in influencing the market as a whole, it is also imperative that they should settle for reasonable pay and not demand excessive pay packages.