Distributive Justice and CEO Compensation
AbstractThis 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 InfoPaper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 05-020.
Date of creation: Aug 2006
Date of revision:
justice theory; fairness; CEO compensation; factorial survey method; MBA students; gender; inequality; Gini coefficient; Atikinson measure; Theil's inequality measures;
Other versions of this item:
- 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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