The pay gap between chief executive officers (CEOs) in the US and those in other developed countries narrowed substantially during the 2000s, making top executive pay an international concern. Researchers have taken positions on both sides of the debate over whether the level of CEO pay is economically justified.
According to Michael L. Bognanno, who has looked into the contentious topic of CEO pay: “Uproar over high executive pay often accompanies macroeconomic or stock market downturns—when the disparity in pay between top executives and regular workers is most unsettling and poor stock returns call executive performance into question.”
He adds: “CEO pay warrants this attention because it is both large and growing in relation to firm financials.”
IZA World of Labor author Priscila Ferreira has also looked into how increased competition affects the pay incentives firms provide to their managers and may also affect overall pay structures. According to Ferreira: “Empirical evidence suggests that executive pay is related to the level of product-market competition. However, while most shocks or policy reforms that foster competition tend to strengthen the link between competition and performance-related pay, it can also be the case that increasing competition reduces incentives.”
“Also, as firms may change their pay structures, the effect of changes in competition to CEOs’ pay is uncertain,” Ferreira adds.
Read Michael L. Bognanno’s full article: Efficient markets, managerial power, and CEO compensation
Read Priscila Ferreira's full article: Market competition and executive pay
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