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Distributive Justice and CEO Compensation

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Author Info

  • Jasso, Guillermina

    ()
    (New York University)

  • Meyersson Milgrom, Eva M.

    ()
    (Stanford University)

Abstract

This paper develops a framework for studying individuals’ ideas about what constitutes just compensation for chief executive officers (CEOs) and reports estimates of just CEO pay and the principles guiding ideas of justice. The sample consists of students pursuing a Master of Business Administration (MBA) degree in Sweden and the United States. The framework, based on justice theory and making use of Rossi’s factorial survey method, enables assessment of ideas of fairness in CEO compensation, including (1) the just CEO compensation, in the eyes of each observer; (2) the principles of microjustice – observers’ ideas about “who should get what” based on characteristics of CEOs and their firms; and (3) principles of macrojustice – ideas about the just level and dispersion in compensation across all CEOs. Our estimates yield the following main results: First, there is broad agreement on the median just CEO compensation but substantial inter-individual variation in the principles of microjustice and the other principles of macrojustice. Second, there is remarkable similarity in the distributions of the principles of microjustice and macrojustice across the MBA groups. Other important results include a pervasive gender attentiveness among MBA students and tolerance for large variability in CEO pay.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3236.

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Length: 37 pages
Date of creation: Dec 2007
Date of revision:
Publication status: published in: Acta Sociologica, 2008, 51 (2), 123-143
Handle: RePEc:iza:izadps:dp3236

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Related research

Keywords: Gini coefficient; inequality; MBA students; CEO compensation; factorial survey method; fairness; justice theory; gender; Atkinson measure; Theil’s inequality measures;

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References

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  1. Roine, Jesper & Waldenström, Daniel, 2006. "The Evolution of Top Incomes in an Egalitarian Society; Sweden, 1903–2004," Working Paper Series 667, Research Institute of Industrial Economics.
  2. Arts, Wil & Hermkens, Piet & van Wijck, Peter, 1991. "Income and the idea of justice: principles, judgments, and their framing/s," Journal of Economic Psychology, Elsevier, vol. 12(1), pages 121-140, March.
  3. Conyon, Martin J & Murphy, Kevin J, 2000. "The Prince and the Pauper? CEO Pay in the United States and United Kingdom," Economic Journal, Royal Economic Society, vol. 110(467), pages F640-71, November.
  4. Thomas Piketty & Emmanuel Saez, 2006. "The Evolution of Top Incomes: A Historical and International Perspective," American Economic Review, American Economic Association, vol. 96(2), pages 200-205, May.
  5. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
  6. Brian J. Hall & Jeffrey B. Liebman, 1997. "Are CEOs Really Paid Like Bureaucrats?," NBER Working Papers 6213, National Bureau of Economic Research, Inc.
  7. Sherwin Rosen, 1990. "Contracts and the Market for Executives," NBER Working Papers 3542, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Rüya Koçer & Herman Werfhorst, 2012. "Education systems and the formation of societal consensus on justice," Quality & Quantity: International Journal of Methodology, Springer, vol. 46(2), pages 451-470, February.
  2. repec:iab:iabzaf:v:40:i:1:p:9-22 is not listed on IDEAS
  3. Edi Karni & Zvi Safra, 2003. "Moral Sentiments and Social Choice: Fairness Considerations in University Admissions," Economics Working Paper Archive 492, The Johns Hopkins University,Department of Economics.
  4. Sauer, Carsten & Liebig, Stefan & Auspurg, Katrin & Hinz, Thomas & Donaubauer, Andy & Schupp, Jürgen, 2009. "A Factorial Survey on the Justice of Earnings within the SOEP-Pretest 2008," IZA Discussion Papers 4663, Institute for the Study of Labor (IZA).
  5. Andreas Kuhn, 2010. "The Public Perception and Normative Valuation of Executive Compensation: An International Comparison," NRN working papers 2010-13, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  6. Edi Karni & Zvi Safra, 2008. "Moral sentiments and social choice," Social Choice and Welfare, Springer, vol. 30(3), pages 427-446, April.

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