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The Effect of Labor Unions on CEOÂ Compensation

Author

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  • Huang, Qianqian
  • Jiang, Feng
  • Lie, Erik
  • Que, Tingting

Abstract

We find evidence that labor unions affect chief executive officer (CEO) compensation. First, we find that firms with strong unions pay their CEOs less. The negative effect is robust to various tests for endogeneity, including cross-sectional variations and a regression discontinuity design. Second, we find that CEO compensation is curbed before union contract negotiations, especially when the compensation is discretionary and the unions have a strong bargaining position. Third, we report that curbing CEO compensation mitigates the chance of a labor strike, thus providing a rationale for firms to pay CEOs less when facing strong unions.

Suggested Citation

  • Huang, Qianqian & Jiang, Feng & Lie, Erik & Que, Tingting, 2017. "The Effect of Labor Unions on CEOÂ Compensation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(2), pages 553-582, April.
    • Handle: RePEc:cup:jfinqa:v:52:y:2017:i:02:p:553-582_00
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    Citations

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    Cited by:

    1. Liu, Claire & Masulis, Ronald W. & Stanfield, Jared, 2021. "Why CEO option compensation can be a bad option for shareholders: Evidence from major customer relationships," Journal of Financial Economics, Elsevier, vol. 142(1), pages 453-481.
    2. Min Park, 2021. "Unionized employees’ influence on executive compensation: Evidence from Korea," British Journal of Industrial Relations, London School of Economics, vol. 59(4), pages 1049-1083, December.
    3. Mark Harcourt & Gregor Gall & Margaret Wilson, 2023. "The union default: Effects and implications of regulated opting‐out," Industrial Relations Journal, Wiley Blackwell, vol. 54(2), pages 132-149, March.
    4. Bristy, Humyra Jabeen & Han, Jianlei & Tian, Gary Gang, 2022. "CEO power and labor-friendly policy," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    5. Kopel, Michael & Petrakis, Emmanuel & Ressi, Anna, 2019. "Endogenous scope of firm-union bargaining with vertical pay comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 39-52.
    6. Maryam Safari & Jacqueline Birt & Yi Xiang, 2022. "The sociology of compensation inequality in upper‐echelon positions: evidence from Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2615-2649, June.
    7. Vafeas, Nikos & Vlittis, Adamos, 2018. "Independent directors and defined benefit pension plan freezes," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 505-518.
    8. Ertugrul, Mine & Marciukaityte, Dalia, 2021. "Labor unions and corporate social responsibility," Journal of Banking & Finance, Elsevier, vol. 125(C).
    9. Brockman, Paul & Luo, Juan & Xu, Limin, 2020. "The impact of short-selling pressure on corporate employee relations," Journal of Corporate Finance, Elsevier, vol. 64(C).
    10. Li, You & Zhang, Jian, 2020. "Stakeholder orientation and stock price crash risk," Finance Research Letters, Elsevier, vol. 37(C).
    11. Kim, Jeong-Bon & Zhang, Eliza Xia & Zhong, Kai, 2021. "Does unionization affect the manager–shareholder conflict? Evidence from firm-specific stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 69(C).
    12. Akisik, Orhan & Gal, Graham, 2023. "IFRS, financial development and income inequality: An empirical study using mediation analysis," Economic Systems, Elsevier, vol. 47(2).
    13. Viput Ongsakul & Pornsit Jiraporn & Sirimon Treepongkaruna, 2021. "Does managerial ownership influence corporate social responsibility (CSR)? The role of economic policy uncertainty," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 763-779, March.
    14. Mark Harcourt & Gregor Gall & Margaret Wilson, 2023. "The effects of public goods framing for a union default policy," Economic and Industrial Democracy, Department of Economic History, Uppsala University, Sweden, vol. 44(4), pages 1197-1221, November.
    15. Di Giuli, Alberta & Matta, Rafael & Romec, Arthur, 2023. "Capital structure and reversible bargaining tools: Evidence from union-sponsored shareholder proposals," Journal of Banking & Finance, Elsevier, vol. 149(C).
    16. Chantziaras, Antonios & Dedoulis, Emmanouil & Leventis, Stergios, 2020. "The impact of labor unionization on monitoring costs," European Management Journal, Elsevier, vol. 38(2), pages 288-307.
    17. Ghaly, Mohamed & Kostakis, Alexandros & Stathopoulos, Konstantinos, 2021. "The (non-) effect of labor unionization on firm risk: Evidence from the options market," Journal of Corporate Finance, Elsevier, vol. 66(C).
    18. Nancy D. Ursel & Ligang Zhong, 2022. "Unionization and CEO turnover," Industrial Relations Journal, Wiley Blackwell, vol. 53(1), pages 53-70, January.
    19. Jongmoo Jay Choi & Ming Ju & Jose M. Plehn-Dujowich & Xiaotian Tina Zhang, 2022. "Outsourcing as a cooperative game between the CEO and labor: theory and evidence," Review of Quantitative Finance and Accounting, Springer, vol. 59(3), pages 1095-1131, October.

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