Citation:
[Journal:] Human Resource Management [ISSN:] 1099-050X [Volume:] 65 [Issue:] 1 [Publisher:] Wiley Periodicals, Inc. [Place:] Hoboken, NJ [Year:] 2025 [Pages:] 169-192
Publisher:
Wiley Periodicals, Inc., Hoboken, NJ
Abstract:
This study examines the impact of executive pay cuts on executive turnover. While previous research has largely focused on the drivers of pay increases of top management team (TMT) members or the effects of their relative pay standing on executive behavior, the prevalence and consequences of pay cuts have received limited attention. Drawing on temporal comparison theory, I argue that executive pay cuts are positively associated with executive turnover. I then propose that the impact of pay cuts on executive turnover depends on contextual cues that influence how executives interpret these cuts. Specifically, I argue that the effect is stronger for salary cuts than for pay‐for‐performance (PFP) cuts. I also argue that the impact of a pay cut is stronger when an executive is paid below the TMT pay level and when few other TMT members experience similar cuts. I test these predictions on a large longitudinal sample of U.S. firms and find empirical support. These results highlight the importance of temporal comparisons in executive pay evaluation processes.