The Real Cost of CEO Compensation: The Effect of Behindness Aversion of Employees

45 Pages Posted: 16 Apr 2018  

Ingolf Dittmann

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; Erasmus Research Institute of Management (ERIM); European Corporate Governance Institute (ECGI)

Christoph Schneider

Tilburg University - Department of Finance

Yuhao Zhu

Erasmus University Rotterdam (EUR)

Date Written: April 10, 2018

Abstract

Do employees who compare themselves to the CEO matter for executive compensation? We hypothesize employees who are behindness averse and compare their wage to the CEO’s pay. Using German establishment-level wage data, we indeed show that employee wages are increasing in CEO compensation. We establish causality by using a difference-in-difference approach and controlling for firm and establishment fixed effects. When CEO compensation increases by 1%, the median employee’s wage increases by about 0.04%. Our findings suggest that behindness aversion of employees is an important driver of wages and significantly increases the costs of executive compensation.

Keywords: CEO compensation, behindness aversion, employee wages, inequality aversion, pay inequality

JEL Classification: D63, G02, G34, J31

Suggested Citation

Dittmann, Ingolf and Schneider, Christoph and Zhu, Yuhao, The Real Cost of CEO Compensation: The Effect of Behindness Aversion of Employees (April 10, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 559/2018. Available at SSRN: https://ssrn.com/abstract=3160228 or http://dx.doi.org/10.2139/ssrn.3160228

Ingolf Dittmann (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 4081283 (Phone)
+31 10 4089165 (Fax)

HOME PAGE: http://people.few.eur.nl/dittmann/

Tinbergen Institute

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Christoph Schneider

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Yuhao Zhu

Erasmus University Rotterdam (EUR)

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
73
rank
300,307
Abstract Views
319
PlumX