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Societal equality sentiment and executive compensation

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  • Onal, Bunyamin
  • Petmezas, Dimitris
  • Xiong, Nan

Abstract

Using elections that reveal changes in countries' leniency on the left-right political spectrum, we examine whether societal sentiment regarding income inequality affects executive compensation. We find that elections that bring left-leaning (pro-equality) political leaders to power are associated with significantly lower CEO pay and this impact begins in the year of such elections, not before. We further show that a rise in pro-equality sentiment restrains powerful CEOs from extracting rents. However, such sentiment also imposes value-damaging limits on incentives of senior executives in a given firm or industry. Our results are robust to a host of alternative measures and specifications.

Suggested Citation

  • Onal, Bunyamin & Petmezas, Dimitris & Xiong, Nan, 2022. "Societal equality sentiment and executive compensation," Journal of Corporate Finance, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:corfin:v:77:y:2022:i:c:s0929119922001572
    DOI: 10.1016/j.jcorpfin.2022.102314
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    More about this item

    Keywords

    Executive compensation; Societal equality sentiment; Elections; Managerial power; Efficient contracting; Firm value;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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