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The determinants and effects of CEO–employee pay ratios - ScienceDirect
Source: sciencedirect.com
Article summary:
1. This article examines the causes of the large and growing gap in CEO compensation relative to rank-and-file employee pay, as well as its effects on employee behavior and performance.
2. The article finds that CEO–employee pay ratio increases with variables that enhance the bargaining power of CEOs, such as firm size, operating and market performance, firm risk, and CEO–chairman duality.
3. The article tests three hypotheses on the effect of relative pay on employee behavior and corporate outcomes, but finds no evidence of a significant relation between relative pay and employee productivity in the full sample.
Article analysis:
This article provides an analysis of the determinants and effects of CEO–employee pay ratios. The authors present their research findings in a clear manner, providing evidence for their claims from prior work in the field. However, there are some potential biases that should be noted when considering this article’s trustworthiness and reliability.
First, the authors focus primarily on US firms over 1993-2006 which may limit the generalizability of their findings to other countries or time periods. Additionally, they use Compustat data which may not be representative of all firms due to selection bias or other factors.
Second, while the authors provide evidence for their claims from prior work in the field, they do not explore any counterarguments or alternative explanations for their findings which could weaken their conclusions. Furthermore, they do not discuss any potential risks associated with their results which could lead to a one-sided reporting of their findings.
Finally, while they test three hypotheses on the effect of relative pay on employee behavior and corporate outcomes, they find no evidence of a significant relation between relative pay and employee productivity in the full sample which could be due to missing points of consideration or missing evidence for their claims made.
In conclusion, this article provides an analysis of the determinants and effects of CEO–employee pay ratios but there are some potential biases that should be noted when considering its trustworthiness and reliability such as limited generalizability due to focusing only on US firms over 1993-2006; lack of exploration into counterarguments or alternative explanations; lack of discussion about potential risks; one-sided reporting; missing points of consideration; missing evidence for claims made; etc.