Share the Gain but Shun the Pain: Pay Growth Inequality Along the Corporate Ladder
52 Pages Posted: 21 Aug 2020 Last revised: 29 Feb 2024
Date Written: February 27, 2024
Abstract
Utilizing granular, individual-level compensation data, we study the escalating within-firm pay inequality in the U.S. by examining the disproportionate pay growth of executives relative to that of non-executive employees (i.e., “pay growth gap”). We document a strong asymmetry in pay growth gaps: Executives, relative to regular employees, are rewarded for good idiosyncratic stock performance but not penalized as much for bad performance. This asymmetry is more pronounced when corporate governance or external monitoring is weaker, suggesting managerial rent extraction as a plausible explanation. Our findings indicate that managerial rent extraction might be an important contributing factor to the substantial rise in within-firm pay inequality.
Keywords: within-firm pay inequality, pay growth gap, managerial rent extraction, corporate disclosure, corporate hierarchy, Longitudinal Employer-Household Dynamics database
JEL Classification: G30, G34, J31
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