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 Unpublished research by Mohan et al (2015) shows that in experiments where consumers were told about relative pay, they were willing to pay higher prices for the same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

Professor Scott-Quinn Hosts Alumni Event in Mumbai

21 November 2006

The tragedy of winning the lottery

16 February 2017
The latest headlines inform us that the youngest ever winner of the “Euromillions” lottery is planning to sue the organisation behind it for “ruining” her life. Ms Jane Park was 17 years old when she won the £1m jackpot, and claims that her fantasies of what winning the lottery would be like are in stark contrast to the reality she is now experiencing. Instead of enjoying the comfort, security and even luxury that she expected her earnings to provide, she feels confused, stressed and anxious.

Event: "The Impact of Brexit on the City" - Tim Skeet

20 February 2017
The ICMA Centre hosted another talk as part of the "Industry Insights" series, this time with long-time banking expert and Visiting Fellow Tim Skeet. The talk, entitled ‘The Impact of Brexit’ on the City, proved to be both enlightening and somewhat hopeful for aspiring financial professionals such as myself and my peers. The talk covered many topics, primarily the causes of Brexit, communication deficiencies on the part of politicians and finance specifically, wider instability in the world and the risks all of this poses for finance, and more specifically finance in the City of London.