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Distributive Justice and CEO Compensation

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Author Info
Guillermina Jasso () (New York University and IZA)
Eva M. Meyersson Milgrom () (Stanford University)

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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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Publisher 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:
Handle: RePEc:iza:izadps:dp3236

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

Find related papers by JEL classification:
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
D6 - Microeconomics - - Welfare Economics
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
G30 - Financial Economics - - Corporate Finance and Governance - - - General
I3 - Health, Education, and Welfare - - Welfare and Poverty
J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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References listed on IDEAS
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  1. Brian J. Hall & Jeffrey B. Liebman, 1998. "Are CEOs Really Paid Like Bureaucrats?," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 653-691, August. [Downloadable!] (restricted)
    Other versions:
  2. 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. [Downloadable!] (restricted)
  3. Thomas Piketty & Emmanuel Saez, 2006. "The Evolution of Top Incomes: A Historical and International Perspective," NBER Working Papers 11955, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. 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. [Downloadable!] (restricted)
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