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 Unpublished research by Mohan et al (2015) shows that in experiments where consumers were told about relative pay, they were willing to pay higher prices for the same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

Two new academics join the ICMA Centre for 2016

9 September 2016
We're delighted to welcome two new academics to the ICMA Centre: Dr Andreas Chouliaras and Ms Lisa Schopohl.

Enhance your skills with the new Advanced Diploma in Investment Compliance

30 April 2010
Investment Compliance The ICMA Centre has a well established expertise in Investment Compliance. We have long recognised and advocated the importance of robust regulatory and compliance policies in financial institutions. This and the level of demand by banks and finance houses for well-trained compliance professionals has led to the Centre running a suite of regulation and compliance executive education programmes both in the UK and around the world. Our corporate clients in the UK include many of major banks such as Deutsche, JPMorgan, Morgan Stanley and Commerzbank. Overseas we have worked with several Central Banks including Serbia and Montenegro, Dubai and Egypt, as well as large corporates in Spain and the Nordic region.

2012: the year in News

8 January 2013
2012 has been an exciting year for the ICMA Centre, filled with success and records.