CEO–Employee Pay Gap, Productivity and Value Creation

Abstract

This study examines the effect of the CEO–employee pay gap on productivity and performance. Using extensive data of 751 constituents of the Standard and Poor’s (S&P) 1500 index between the years 1992–2016, we found a cubic relationship between salary differential and corporate productivity, with a rising gap adversely affecting productivity principally when it is both too low, as well as too high; intermediate pay inequality levels are less influential. A contrast in the productivity effects of the CEO–worker pay gap for firms with high average salaries and more employees was noticeable, whereas positive productivity gains were present even with a high salary gap. Thus, big companies with a highly skilled workforce are able to achieve tangible benefits through higher salary differentiation. On the other hand, companies with lower average salaries and lower capital intensity were characterized by the negative effects of wage dispersion on productivity. As a result, increasing inequality aversion is an important issue affecting performance among smaller, lower skilled labor dependent firms. Additionally, female CEOs had a significant and positive lagged effect on productivity. Finally, firm market valuation was positively stimulated by the increasing pay gap.

Executive Compensation - Ethical Issues in Human Resource

“…Executives, on the other hand, earn 209 times as much as the average industrial worker. According to, this last area of fairness was regarded the least essential in determining compensation policies in practice (Przychodzen & Gómez-Bezares, 2021;Santulli, 2022).…”

“…However, there has been no explanations as to how these levels might lead to unethical behavior. The following section will discuss the ethical implications of compensation schemes, as well as ethical opinions on existing executive cultures, including instances of how management might Dilemmas (Pathan, Haq, & Morgan, 2022;Przychodzen & Gómez-Bezares, 2021;Santulli, 2022;Zhang & Zhang, 2022).The principal-Agent dilemma has been addressed in compensation packages throughout the previous decade. The Principal Agent dilemma arises when shareholders (principals) and executives have opposing interests (the agents) (Voorn et al, 2019).…”

“…Directors' reputations will be hurt if recruiting discussions fail owing to an inability to agree on a wage rate. Due to the fact that the majority of executives are also executives, there are additional conflicts of interest (Przychodzen & Gómez-Bezares, 2021;Zhang & Zhang, 2022).…”

Structure of Remuneration as Assessed by Employees of the Energy Sector—Multivariate Correspondence Analysis

“…The last approach is interesting because it combines two views on the value of work, i.e., the value of the job position and the value of competences that the performer of this work-the employee-has at his disposal. The individual remuneration of employees is also determined by the phenomena related to the environment of the organization, i.e., both regional, sectoral and industrial conditions [20][21][22][23][24][25].…”

Multiple Correspondence Analysis in the Study of Remuneration Fairness: Conclusions for Energy Companies—Case Study of Poland

“…Currently, one of the popular research topics is the problem of the gender pay gap. The problem of the "wage gap" [16] is examined in relation to top positions [17], race [18], or other issues important to a particular labour market. The literature offers a number of explanations for this phenomenon, such as education, work experience [19], individual preferences and attitudes [20], as well as decisions about having children [21] and whether they have undertaken negotiation [22].…”