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Published (Version of record)CC BY V4.0, Open Access
Published (Version of record)CC BY V4.0, Open
Journal article
CEO-employee pay ratio and labor investment efficiency
Finance research letters, Vol.67(1), pp.1-9
01/09/2024
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Abstract
This paper investigates the impact of CEO-to-median employee pay ratios on labor investment efficiency. Drawing on competing predictions from Talent Assignment Theory and Equity Theory, we examine how pay disparity between CEOs and average workers influences suboptimal investment in labor (labeled inefficient investment in labor). Our analysis finds a significant negative relationship between pay ratios and inefficient investment in labor, suggesting firms with higher CEO compensation exhibit more balanced labor investments. This challenges Equity Theory, which hypothesizes that large intra-firm pay gaps cause perceived unfairness and underinvestment in labor. Overall, the study provides novel evidence on how CEO pay practices shape employee behaviors and factor inputs. The findings contribute to ongoing debates regarding the economic implications of CEO compensation, particularly in optimizing human capital efficiency.
Details
- Title
- CEO-employee pay ratio and labor investment efficiency
- Creators
- Yulin Li - The University of AdelaideChee Seng Cheong - The University of AdelaideJean Canil - The University of Adelaide
- Publication Details
- Finance research letters, Vol.67(1), pp.1-9
- Publisher
- Elsevier Inc.
- Number of pages
- 9
- Identifiers
- 991013340728802368
- Copyright
- © 2024 The Author(s).
- Academic Unit
- Faculty of Business, Law and Arts
- Language
- English
- Resource Type
- Journal article