Persistently Underpaid CEOs And Their Influence On Pay Benchmarks
Source: Mississippi State University
This paper analyzes whether frugal S&P 500 boards have used increasingly transparent pay data on their CEOs' peers to minimize the perceived inequity of persistent underpayment (relative to the peer group median). The author finds they do, and as a result median pay for the same performance has increased by at least 5% per year (after inflation), starting in early 1980s. Legislation and listing requirements enacted to reduce excessive pay do not slow this increase. Boards' likely are motivated to redress perceived pay inequities because CEOs paid less than peers underperform CEOs paid more. Outcomes expected based on the effect of perceived inequity and labor markets conditions are confirmed.