These two stock-related items—stock options and stock awards—together still make up the bulk of CEO compensation, at 74% and 68%, respectively, of options-exercised and options-granted CEO compensation measures in 2018. The granted measure of CEO compensation, which values stock options granted in 2020 (not those exercised), actually fell by $30,000, or 0.2%, to 13.9 million. Thus, it seems the large growth of CEO compensation in 2020 was driven by executives cashing out their options at a time of high stock prices. As shown in Table 13, the mean abnormal stock return on the day of the event (0.09%) was positive and significant according to both the CDA test as well as the Generalized Z test. Furthermore, these results were consistent with the use of the Market Adjusted Model (Brown & Warner, 1985), which assumes that the expected return is the average rate of return of all stocks trading in the stock market at time t.
- The CEO decides the company’s direction, and the President turns those decisions into reality15.
- Workers across the country have been winning higher pay since the pandemic, with wages and benefits for private-sector employees rising 4.1% in 2023 after a 5.1% increase in 2022, according to the Labor Department.
- The series on the income of the top 0.1% of households that Kaplan used is no longer available.
- A one-point rise in the ratio is the equivalent of the average CEO earning an additional amount equal to that of the average earnings of someone in the top 0.1%.
- This makes sure everyone’s actions help reach the company’s big goals.
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- In contrast, the typical workers in these large firms saw their annual compensation grow by just 5.3% over the recovery and actually fall by 0.2% between 2017 and 2018.
- CEO compensation has grown 52.6% in the recovery since 2009 using the options-exercised measure and 29.4% using the options-granted measure.
- The chief executive officer serves as the public face of the company in many cases.
- Of the remaining working time, 25% was spent on relationships, 25% on business unit and functional reviews, 21% on strategy, and 16% on culture and organization.
- They may also be given the title of “president.” They’re in charge of managing the group of individuals often assigned a specific task or a set of responsibilities.
- In contrast, the measures firms provide to the SEC can be and are sometimes based on the actual annual (not annualized) wages of part-year (seasonal) or part-time workers.
Over the 2009–2020 period CEO pay resumed its upward trajectory and the 130.3% surge in realized CEO compensation brought the ratio to 351-to-1, above its 2007 level. Though the realized CEO-to-worker compensation ratio remains below the value achieved in 2000 at the peak of a stock market bubble, it is far higher than it was in the 1960s, 1970s, 1980s, and most of the 1990s. The stock market decline during the 2008 financial crisis also sent CEO compensation tumbling, as it had in the early 2000s, as realized CEO compensation dropped 46.6% from 2007 to 2009. After 2009, realized CEO compensation resumed an upward trajectory, growing 130.3% from 2009 to 2020 so that CEO compensation exceeded its previous level from 2007 by 23.0%. In fact, the fast growth of CEO compensation in 2020 brought realized CEO compensation $2 million above its prior peak level in 2000 at the height of the stock market bubble. Surprisingly, “there has been little empirical research into it (brand trust)” (Delgado-Ballester & Munuera-Aleman, 2005, p. 187) and “what builds trust remains largely unanswered” (Kang & Hustvedt, 2014, p. 253).
CEO compensation, CEO-to-worker compensation ratio, and stock prices (2020$), selected years, 1965–2020
From 1995 onward, the table also identifies the average annual compensation of production/nonsupervisory workers in the key industry of the firms included in the sample. We therefore argue that the interaction of high CEO pay and brand crisis will negatively impact consumer trust in the brand. Drawing upon research demonstrating the positive (negative) impact of trust (distrust) on consumers’ intent to purchase (Chaudhuri & Holbrook, 2001), we further posit that lower brand trust, in turn, will negatively impact consumers’ purchase intent. According to the market-based view, those responsible for determining CEO pay, boards of directors (BODs),Footnote 1 may view high CEO compensation as necessary to ensure competitive pay with peer-level CEOs (Sandberg & Andersson, 2020). Temple University professor Steve Balsam provided tabulations from the Capital IQ database of annual wages of executives exceeding the wage thresholds (provided to him) that place them in the top 0.1% of wage earners.
Pilot Study
Future research would be helpful in expanding the types of brand crises investigated. The results from Study 2 provide support for H4, indicating that the impact of brand crisis on the CEO pay–consumer purchase intent relationship is more negative for strong than weak brands. This suggests that strong (versus weak) brand equity establishes high expectations of behavior. When there is incongruence between CEO pay (high) and CEO performance (leader of the firm during a time of brand crisis), brands that have established strong equities are likely to drive greater consumer distrust, causing lower levels of purchase intent. While strong brand equity provides significant benefits for firms, this suggests a potential negative consequence of such strong equity.
- In various corporate structures, like conglomerates and single entities, the CEO and President have different roles.
- Some studies report a positive association between high CEO and firm performance (e.g., Fong et al., 2015) with others reporting a negative relationship between high CEO and firm performance (Balafas & Florackis, 2014; Brick et al., 2006).
- The market model was used to estimate abnormal stock returns (e.g., Brown & Warner, 1985; Swaminathan & Moorman, 2009).
- More specifically, a skilled CEO should continue a firm’s prior good performance and reverse poor performance.
- This can include delegating and directing agendas, driving profitability, managing company organizational structure and strategy, and communicating with the board.
- This spreads the leadership roles effectively over different sectors.
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There might be two possible reasons for why pay fairness perception did not play a significant mediating role. First, unlike Mohan et al. (2018) and Benedetti and Chen (2018), we examined the significance of CEO pay during brand crisis. Second, unlike previous studies, we manipulated absolute CEO pay rather than CEO pay relative to average employee pay. It is possible the relative pay measure more directly highlights pay fairness, driving consumers’ attention to fairness (while absolute pay does not). Thus, we rule out the possibility that pay fairness could also be an alternative reason for the impact of absolute CEO pay on purchase intention. Efforts by the government, shareholders, media, and the public to reign in pay have had little consequence, as CEO compensation continues to increase (e.g., Morgenson, 2021).
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The fall in CEO compensation between 2014 and 2016 caused the CEO-to-worker pay ratio to fall. The ratio bumped up in 2017 and basically was stable in 2018, dipping a bit to 278-to-1. Although the CEO-to-worker compensation ratio remains below the value achieved in 2000, at the peak of the stock market bubble, it is far higher than it was in the 1960s, 1970s, 1980s, and 1990s. According to efficient market hypothesis, the stock market only Chief Executive Officer of an AI startup job reacts to new, unexpected news about a company and such news is immediately incorporated into the stock price. However, expected news is already incorporated into the stock price and does not lead to any change in it. However, we expect CEO pay to impact the stock price in the context of the unexpected news of new product introductions in the backdrop of a history of many product-related concerns.
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These firms are therefore not included in the calculation of the CEO-to-worker compensation ratio. Software quality assurance Other policies that could potentially limit executive pay growth are changes in corporate governance, such as greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation. Finally, this research has implications that go beyond theory and practice. As the most prominent leaders in the business world, CEOs are responsible for the welfare of millions of stakeholders (e.g., Freeman, 1984).