When CEO Pay Becomes a Brand Problem

Finally, the event study uses a diverse set of industries to provide more general validation from Studies 1 and 2. Specifically, it examines the link between CEO pay and shareholder value during firms’ product-related crises (H2), as investors incorporate the predicted impact of crises on consumers’ purchase intentions. To explore the moderating role of brand equity (i.e., H4), the sample of events was also divided into two sub-samples representing brands with high and low equities, respectively. Although our combination of experiments and an event study provide converging support for our theory, there are nonetheless limitations.

Event Study

• The stock market decline during the 2008 financial crisis also sent CEO compensation tumbling, as it had in the early 2000s.
• The last two columns in Table 2 show the resulting ratio for both measures of CEO pay.
• To some analysts, this suggests that the dramatic rise in CEO compensation has been driven largely by the demand for the skills of CEOs and other highly paid professionals.
• The impact of brand crisis on the CEO pay-consumer purchase intent relationship is more negative for strong than weak brands.

The tax data analyzed categorizes a household’s income according to the occupation and industry of the head of household. It is possible that a “secondary earner,” or spouse, has income earned as an executive or as a financial-sector worker. If the household is in the top 1.0% or top 0.1%, but the head of household is not an executive or in finance, then the spouse’s contribution to income growth will not be identified as being connected to executive pay or financial-sector pay. For comparison purposes, Table 2 also shows the changes in the gross (not regression-adjusted) college-to-high-school wage premium. This premium is simply how much higher the hourly wages of workers with a (four-year) college degree are relative to hourly wages of workers with only a high school diploma.

Table 7.

CEO compensation continues to be dramatically higher than it was in the decades before the turn of the millennium. CEO compensation was 940.3% higher in 2018 than in 1978 using the options-exercised measure and 1,007.5% higher using the options-granted measure. Correspondingly, the CEO-to-average-worker pay ratio, using the options-exercised measure, was 121-to-1 in 1995, 58-to-1 in 1989, 30-to-1 in 1978, and 20-to-1 in 1965. From 1995 onward, the table also identifies the average annual compensation of the production/nonsupervisory workers corresponding to the key industry of the firms included in the sample.

• Trends before 1995 are based on the changes in average top-company CEO and economywide private-sector production/nonsupervisory worker compensation.
• Assigning multiple titles to a single executive-level individual can wreak havoc on a business’s continuity and ultimately affect its long-term profitability.
• At first, one person might handle multiple executive roles but later, these roles become separate as the company expands2.
• Investors tend to be more comfortable with new CEOs who are already familiar with the dynamics of the company’s industry and the specific challenges the company might be facing.
• If stock awards have a lengthy vesting period, say three to five years, then the CEO has an interest in lifting the firm’s stock price over that period while being mindful to avoid any implosion in the stock price—to maintain the value of what they have.

CEO-to-worker pay ratios: The new SEC rule and EPI’s methodology

For over four decades, the topic of Chief Executive Officer (CEO) compensation has attracted considerable attention from the fields of economics, finance, management, public policy, law, and business ethics. As scholarly interest in CEO pay has increased, so has public concern about the ethics of high CEO pay. Despite growing interest and pressure among the public and government to reduce CEO pay, it has continued to increase. Using a multi-method design incorporating a pilot study, two online experiments, and an event study, we investigate the impact of CEO pay on consumer purchase intent and find that this negative relationship is magnified under conditions of brand crisis. We also find that the negative interaction of high CEO pay and brand crisis on purchase intent is more negative when the brand has strong equity. Finally, when the CEO is awarded high pay while the firm they manage is undergoing a brand crisis, consumers lose trust in the firm’s brand which reduces consumer purchase intent.

The price of a company’s stock could change for any number of reasons when a new CEO takes over. A change in CEO generally carries more downside risk than upside, Chief Executive Officer of an AI startup job particularly when it hasn’t been planned. A stock’s price could swing up or down based on the market’s perception of the new CEO’s ability to lead the company. An owner is a financial stakeholder of a company, usually with an equity position in the business.

After its investors gave another resounding thumbs down to the pay packages for its top executives, Netflix met with many of its biggest shareholders last year to discuss their concerns. It also talked with major proxy-advisory firms, which are influential because they recommend how investors should vote at companies’ annual meetings. After World War II and up until the 1980s, CEOs of large publicly traded companies made about 40 to 50 times the average worker’s pay, said Brandon Rees, deputy director of corporations and capital markets for the AFL-CIO, which runs an Executive Paywatch website that tracks CEO pay. Corporate boards often feel pressure to keep upping the pay for well-performing CEOs out of fear that they’ll walk out the door and make more at a rival.

Dramatically high CEO pay does not simply reflect the market for skills

This latter increase exceeded even the growth of the booming stock market (513% for the S&P 500 and 439% for the Dow) between 1978 and 2000. In stark contrast to both the stock market and CEO compensation, private-sector worker compensation increased just 0.7% over the same period. These results are in sync with the preliminary analyses (Mishel and Kandra 2021) previously reported. how to hire a software developer Mishel and Kandra (2021) analyzed the firms from the 2019 sample that had reported their executive compensation by the end of April 2021.