Skip to main content

Corporate excess: Who cares about CEO pay?

ICMA Feature

The big question is: do employees and shareholders care?

Research on American companies suggests that employees don’t care, at least not in the way we might think. Faleye et al (2013) show that productivity is not affected by high pay ratios, except that is in companies with fewer employees. Interestingly, in these companies a high ratio spurs employees to greater efforts and productivity improves. Higher pay ratios are also good news for shareholders, because company value increases with the pay ratio.

So is anyone apart from the government and media, upset by high pay ratios?

The answer may be consumers. Unpublished research by Mohan et al (2015) shows that in experiments where consumers were told about relative pay, they were willing to pay higher prices for the same product if it was sold by a company with a lower pay ratio. In other words they wanted to punish firms that paid their CEOs “too much”.

If consumers are motivated to seek out the new data (a big “if”) and use it in their buying decisions this could affect profitability and company values, at which point shareholders and CEOs will have to become far more concerned about relative pay in British companies.


Published 30 August 2017

You might also like

Industry Insights: Private Equity

23 February 2018
In this week's Industry Insights talk, Jamie Hayford an alumni and Investment Associate at Pantheon Ventures talked us through the Private Equity Sector. As usual, my colleague Daniel Robertson has provided the review:
Industry Insights reviews

Banking Crisis caused by Greed and Fear

7 August 2009
Professor Brian Scott-Quinn has described the ultimate cause of the banking crisis with the words: ?greed and fear'

President Trump: Is combatting global warming really “bad for US business”?

10 November 2016
10 November 2016 - Article by Dr. Pei-Shan Yu, Post Doctoral Researcher at the ICMA Centre, Practical Tools Research Group, MISTRA Financial Systems