Pride and Prestige: Why Some Firms Pay Their CEOs Less
Ernst G. Maug
University of Mannheim - Department of Business Administration and Finance; European Corporate Governance Institute (ECGI)
University of Mannheim - Department of Finance
University of Mannheim - Department of Business Administration and Finance; University of Mannheim - Graduate School of Economic and Social Sciences
June 8, 2012
Paris December 2012 Finance Meeting EUROFIDAI-AFFI Paper
We investigate the impact of measures of firms' prestige on CEO compensation and find that CEOs of more prestigious companies earn less. For example, total CEO compensation is on average 9% lower for firms rated among Fortune's ranking of America's most admired companies. We suggest that CEOs derive social benefits in the form of an enhanced social status if they work for a company that enjoys public admiration, and that boards extract pay concessions for this non-monetary benefit. Results obtain only for firms with independent compensation committees and other measures of strong boards, presumably because weak boards leave rents to powerful CEOs. The effect also obtains for alternative measures of firm prestige and for older CEOs. We perform a range of robustness checks and can exclude several alternative explanations, including that CEOs wish to signal higher status through lower pay, and that our results are driven by career concerns or by owner-CEOs who forego higher compensation.
Number of Pages in PDF File: 45
Keywords: CEO Compensation, status, social benefits, firm prestige
JEL Classification: G30, M52working papers series
Date posted: June 11, 2012
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