Much like with the opportunity cost, this factor is also likely to reduce the number of candidates willing to become the CEO of company X with seriously reduced pay. While it once again is difficult to assess the strength of the factor, one could hypothesise that it will have the most influence on candidates that perceive themselves to have relatively high talents (irrespective of whether the assessment is correct or not). One could also speculate that social comparisons are more important for CEOs than for university presidents and military generals, which were the points of reference above. Indeed, several empirical studies have been able to confirm the influence of social comparisons on CEO pay levels (cf. Ang et al. 2009, Kovacevic 2005, O’Reilly et al. 1988). Given the prevalence of the social comparison literature above, it is somewhat remarkable that these ideas have not made it into the current ethical debates on CEO pay.
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Most previous commentators have argued that the current very high levels of CEO pay are unjustified from an ethical perspective. In contrast, we will argue that there are at least some things to say in favour of such levels based on the relevance of peer comparisons. Thus, the article provides a partial but modest defence of the argument from peer comparison. That the argument favours a conclusion that seems unpalatable to many (including the authors of this paper) is not a good reason to ignore it; instead it becomes all the more interesting from a philosophical perspective because of this. The pay for chief executives at major companies in the United States increased by an astonishing 1,085% from 1978 to 2023, while the typical worker’s earnings rose by only 24%, as reported by the Economic Policy Institute, a nonpartisan think tank. Effective leadership involves making challenging choices that balance the interests of all stakeholders, including employees, shareholders, and the company’s long-term well-being.
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- From 1980 to 2004, CEO compensation grew at an annual rate of 8.5%, compared to corporate profit growth of 2.9% per year and per capita income growth of 3.1%.
- In line with past research showing that professionalisation of top management is still low in Indian family firms, 64 percent of the CEOs were drawn from the controlling family.
- Comparing CEO salaries in small companies to industry standards can be challenging due to the wide range of factors that influence compensation.
- In addition, the presence of a lagged endogenous variable creates a potential upward endogeneity bias when estimating equations using ordinary least squares due to a correlation between the time invariant unobserved fixed effects and the explanatory variables.
- The median total direct compensation for CEOs increased 3.8%, reaching $16.2 million in 2024.
- However, excessive CEO pay can have negative consequences, such as income inequality and decreased employee morale.
The women in this year’s study earned a median total compensation of $20 million, 17.4% higher than the overall index median. For the first time in more than five years, Lisa Advanced Micro Devices CEO Lisa T. Su was not the highest-paid woman in 2024. That distinction went to Judith Fran Marks Chief Executive Officer of an AI startup job of Otis Worldwide, who earned $42.1 million in 2024. Jane Nind Fraser of Citigroup ranked second at $31.1 million, followed closely by Su at $31 million. As poll after poll after poll has shown, Americans across the political spectrum are fed up with overpaid CEOs and want government action.
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As shown in Table 3, changes in employee engagement are not significantly related to changes in CEO compensation (Column 1) and CEO overcompensation (Columns 2–3). This finding suggests either that the advantages and disadvantages of higher CEO (over)compensation generally balance each other out or that these are not strong enough to significantly influence employee engagement. One noteworthy observation is the sign full-stack developer reversal of overcompensation compared with the actual compensation level, but a between-model comparison of coefficients shows that these coefficients do not significantly differ at conventional significance levels. The relationship between CEO (over)compensation and employee engagement is more negative in the financial sector compared to other sectors. During that time, the Health Wagon’s revenue increased 87%, to more than $9.2 million.
In the 1990s, executive compensation soared to unprecedented levels, with CEOs earning 399 times the average worker’s salary by 2021, according to the Economic Policy Institute. Activist shareholders may push for changes in executive compensation practices, such as linking pay more closely to performance metrics or reducing overall compensation levels. This article delves into the intricacies of CEO salaries, exploring the factors that influence executive pay, the trends shaping these compensation packages, and the implications they have for various stakeholders. Table 3 shows the results of the system GMM regressions on how employee engagement relates to compensation (H1; Column 1), overcompensation (H2; Columns 2–3), and compensation controversies (H3; Column 4). System GMM assumes that the internally generated instruments are exogenous (tested with the Hansen J statistic) and that the error term is not serially correlated (tested with the AR(2) test).
Typically, everyone in these companies—from senior managers to personal assistants—is paid more than workers at their more traditional counterparts. But that reality makes for a less juicy narrative than stories of CEOs taking money from their workers. Good CEOs are some of the world’s most potent creators and have some of the very deepest skills of understanding. Today’s CEO, at least for major American firms, must have many more skills than simply being able to “run the company.” CEOs must have a good sense of financial markets and maybe even how the company should trade in them. They also need better public relations skills than their predecessors, as the costs of even a minor slipup can be significant.
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This knowledge is not only crucial for navigating the complexities of executive compensation but also for driving business success in an increasingly scrutinized and regulated corporate environment. The Dodd-Frank Act requires companies to disclose the CEO pay ratio and hold Say-on-Pay votes, giving shareholders a voice in compensation policies. They are compensated for aligning their interests with shareholders through bonuses and stock options. CEO compensation in 2020 was 6.88 times as high as wages of the top 0.1% of wage earners, a ratio 3.7 points greater than the average CEO-to-top-0.1% ratio over the 1947–1979 period.