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State-level political environments and executive compensation in the United States: evidence on pay inequality

Author

Listed:
  • Jiyoung Park

    (Hannam University)

  • Jiyoon Lee

    (Yonsei University)

  • Jessika Holtta

    (Yonsei University)

Abstract

We examine the association between the political environment and pay inequality among top executives as well as pay–performance sensitivity in CEO compensation. In the United States, the Republican and Democratic parties represent two major political ideologies with distinct priorities and conflicting interests. Republicans typically focus on individual liberties and free markets, while Democrats emphasize equality and social policies. Using state-level political ideology as a proxy for the political environment, we explore whether CEO pay slice—defined as a CEO’s compensation divided by the compensation offered to a firm’s top five executives—differ across ideological environment. Contrary to our expectations, the results do not show that CEO pay is higher in Republican-leaning states relative to Democratic-leaning states. Nor do we find stronger pay-performance sensitivity in Republican-leaning states. These results are robust to several alternative specifications, including the use of stock grants, the exclusion of swing-state firms, and the use of state-level policy orientation measure. Overall, our findings suggest no statistically significant association between the political environment and corporate executive compensation policies.

Suggested Citation

  • Jiyoung Park & Jiyoon Lee & Jessika Holtta, 2025. "State-level political environments and executive compensation in the United States: evidence on pay inequality," Economics of Governance, Springer, vol. 26(3), pages 439-467, September.
    • Handle: RePEc:spr:ecogov:v:26:y:2025:i:3:d:10.1007_s10101-025-00336-0
    DOI: 10.1007/s10101-025-00336-0
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