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Distributive Justice and CEO Compensation

  • Guillermina Jasso

    ()

    (New York University)

  • Eva M. Meyersson Milgrom

    (Stanford University)

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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File URL: http://www-siepr.stanford.edu/repec/sip/05-020.pdf
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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 05-020.

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Date of creation: Aug 2006
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Handle: RePEc:sip:dpaper:05-020
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  1. Roine, Jesper & Waldenstrom, Daniel, 2008. "The evolution of top incomes in an egalitarian society: Sweden, 1903-2004," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 366-387, February.
  2. Brian J. Hall & Jeffrey B. Liebman, 1997. "Are CEOs Really Paid Like Bureaucrats?," NBER Working Papers 6213, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. 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.
  6. Sherwin Rosen, 1990. "Contracts and the Market for Executives," NBER Working Papers 3542, National Bureau of Economic Research, Inc.
  7. 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.
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