Does Stakeholder Outrage Determine Executive Pay?

Abstract

An unprecedented number of firms announced CEO salary reductions at the onset of the coronavirus pandemic, which we argue was triggered by an exogenous increase in stakeholder outrage toward executive pay. We document that the overall compensation of these CEOs did not actually decrease. They received substantial increases in opaque components of compensation and perks, especially powerful CEOs leading firms with weak governance. We contextualize these results as a managerial power response to stakeholder outrage, presenting evidence on the role of a strong corporate governance framework during crises. Our findings can inform improved executive compensation practice and disclosure policies.

Keywords: CEO compensation, Managerial power, Shareholder value, Rent extraction, Crises

JEL Classification: G34