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 Unpublished research by Mohan et al (2015) shows that in experiments where consumers were told about relative pay, they were willing to pay higher prices for the same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

References:

Published 30 August 2017

You might also like

ICMA Centre lecturer wins Henley Business School's 2012 Research Prize

15 March 2012
The ICMA Centre's Dr Simone Varotto has been awarded the University's 2012 Output Prize for Henley Business School. Each year the University awards Faculty Output Prizes for the best research outputs from each of its four faculties.
Research news

Industry Insights: Trium Capital - Life as a Trader

29 November 2018
The 7th Industry Insights event was presented by David Slater and organised by the ICMA Centre in partnership with the University of Reading Finance Society. During this insight he talked about his career, his experience as a trader during the 2007-2009 crisis and the changes that happened after this event in the financial industry. He also gave out important tips for interviews.
Industry Insights reviews

Two staff gain academic promotions

11 June 2012
The ICMA Centre is very proud to be able to announce the recent promotions of two of our academic staff.