Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/41387
Title: 

Is Executive Compensation Shaped by Public Attitudes?

Authors: 
Kuhnen, Camelia M.
Niessen-Ruenzi, Alexandra
Year of Publication: 
2008
Series/Report no.: 
CFR Working Paper 08-09
Abstract: 
In a competitive managerial labor market, compensation contracts should not depend on public attitudes or social norms regarding income inequality or 'fair pay'. In contrast to the standard view of optimal incentive design, we find that public opinion impacts executive compensation. We show that transient negative shocks to the public's view of executive pay leads to less total CEO pay, and to a shift away from options-based compensation and towards other types of pay. Furthermore, the level and composition of CEO pay also depends on persistent local social norms, such as state-level attitudes towards income inequality, or religiosity. For instance, in states where residents are likely to be more concerned with income inequality, CEO pay is lower across all types of compensation. Therefore, by changing the incentives faced by managers, social norms may influence executive decisions and ultimately, have an effect on real economic outcomes.
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Document Type: 
Working Paper

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