Impact of Societal Trust on CEO Compensation
42 Pages Posted: 14 Jan 2016
Date Written: October 12, 2015
Abstract
We examine the association between societal trust and the levels of CEO compensation and the proportion of equity-based compensation of 1,892 firm-years from 22 countries over the 2007-2013 period. We find both the levels of CEO compensation as well as the proportion of equity-based compensation to be lower in countries with higher levels of societal trust. This suggests that costly regulations on CEO compensation may not be as necessary in jurisdictions with higher levels of societal trust. We also examine the association between pay disparity and societal trust. Consistent with our finding of lower pay at the CEO rank, we find pay disparities are lower in countries with higher levels of societal trust.
Keywords: Trust, CEO pay, Culture, Income disparity
JEL Classification: J33, M52
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