Is Executive Compensation Shaped by Public Attitudes?
In a competitive managerial labor market, compensation contracts should not depend on public attitudes or social norms regarding income inequality or 'fair pay'. In contrast to the standard view of optimal incentive design, we find that public opinion impacts executive compensation. We show that transient negative shocks to the public's view of executive pay leads to less total CEO pay, and to a shift away from options-based compensation and towards other types of pay. Furthermore, the level and composition of CEO pay also depends on persistent local social norms, such as state-level attitudes towards income inequality, or religiosity. For instance, in states where residents are likely to be more concerned with income inequality, CEO pay is lower across all types of compensation. Therefore, by changing the incentives faced by managers, social norms may influence executive decisions and ultimately, have an effect on real economic outcomes.
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- Xavier Gabaix & Augustin Landier, 2008.
"Why has CEO Pay Increased So Much?,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 123(1), pages 49-100.
- Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," 2006 Meeting Papers 518, Society for Economic Dynamics.
- Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," NBER Working Papers 12365, National Bureau of Economic Research, Inc.
- Rafael Gomez & Konstantinos Tzioumis, 2006. "What Do Unions Do to Executive Compensation?," CEP Discussion Papers dp0720, Centre for Economic Performance, LSE.
- Rafael Gomez & Konstantinos Tzioumis, 2006. "What do unions do to executive compensation?," LSE Research Online Documents on Economics 19865, London School of Economics and Political Science, LSE Library.
- Hilary, Gilles & Hui, Kai Wai, 2009. "Does religion matter in corporate decision making in America?," Journal of Financial Economics, Elsevier, vol. 93(3), pages 455-473, September.
- Gilles Hilary & Kai Wai Hui, 2009. "Does Religion Matter in Corporate Decision Making in America?," Post-Print hal-00481919, HAL.
- Bruce Ian Carlin & Simon Gervais, 2009. "Work Ethic, Employment Contracts, and Firm Value," Journal of Finance, American Finance Association, vol. 64(2), pages 785-821, 04.
- Robert J. Gordon & Ian Dew-Becker, 2008. "Controversies about the Rise of American Inequality: A Survey," NBER Working Papers 13982, National Bureau of Economic Research, Inc.
- Dew-Becker, Ian & Gordon, Robert J, 2008. "Controversies about the Rise in American Inequality: A Survey," CEPR Discussion Papers 6817, C.E.P.R. Discussion Papers.
- Kevin J. Murphy & Ján Zábojník, 2004. "CEO Pay and Appointments: A Market-Based Explanation for Recent Trends," American Economic Review, American Economic Association, vol. 94(2), pages 192-196, May.
- DiNardo, John & Hallock, Kevin F. & Pischke, Jörn-Steffen, 2000. "Unions and the Labor Market for Managers," IZA Discussion Papers 150, Institute for the Study of Labor (IZA).
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