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

See all articles by Jie He

Jie He

University of Georgia - Department of Finance

Lei Li

Board of Governors of the Federal Reserve System

Tao Shu

The Chinese University of Hong Kong (CUHK) - CUHK Business School

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

Suggested Citation

He, Jie and Li, Lei and Shu, Tao, Share the Gain but Shun the Pain: Pay Growth Inequality Along the Corporate Ladder (February 27, 2024). European Corporate Governance Institute – Finance Working Paper No. 834/2022, Available at SSRN: https://ssrn.com/abstract=3662425 or http://dx.doi.org/10.2139/ssrn.3662425

Jie He (Contact Author)

University of Georgia - Department of Finance ( email )

B318 Amos Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States

Lei Li

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Tao Shu

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
292
Abstract Views
1,794
Rank
190,941
PlumX Metrics