Share the Gain but Shun the Pain: Workplace Inequality in Pay Growth

60 Pages Posted: 21 Aug 2020 Last revised: 9 Nov 2020

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, Shenzhen; Shenzhen Finance Institute

Date Written: November 9, 2020

Abstract

Using granular, individual-level compensation data, we study the within-firm difference in pay growth between executives and non-executive employees (i.e., “pay growth gap”). Our results reveal an asymmetric relation between a firm’s pay growth gap and the “skill” (idiosyncratic) component of its stock returns, suggesting that executives, relative to employees, are rewarded by high pay growth when firms perform well but not penalized as much by pay cuts when firms perform poorly. This asymmetric relation becomes more pronounced when firms have weaker corporate governance. Our evidence suggests that managerial rent extraction is an important driver of the within-firm pay growth inequality.

Keywords: employee pay growth, within-firm pay inequality, CEO-to-median-employee pay gap, corporate hierarchy, Longitudinal Employer-Household Dynamics database, managerial rent extraction

JEL Classification: G30, G34, J31

Suggested Citation

He, Jie and Li, Lei and Shu, Tao, Share the Gain but Shun the Pain: Workplace Inequality in Pay Growth (November 9, 2020). 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, Shenzhen ( email )

Shenzhen Finance Institute ( email )

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