Excessive CEO pay could be having much greater effect than previously believed, increasing employee turnover lower down the organisation and damaging returns to shareholders.
Executive compensation scholars have released new, breakthrough research analyzing perceptions of fairness in executive pay and how CEO over- or underpayment cascades down to lower organisational levels.
A new U.S. study, "Overpaid CEOs and Underpaid Managers: Fairness and Executive Compensation," looked at data from over 120 firms over a five-year period and found that CEO pay has direct consequences for compensation lower down an organisation.
This is because the effects of CEO overpayment cascade – at diminishing degrees – down to subordinates.
For example, where one CEO was overpaid by 64 per cent, individuals in the same company at Level 2 (COO, CFO, etc.) were overpaid by 26 per cent, while individuals at Level 5 (division general managers) were overpaid by 12 per cent.
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