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Determinants and Performance Effects of Executive Pay Multiples

Author

Listed:
  • Jae Yong Shin
  • Sung-Choon Kang
  • Jeong-Hoon Hyun
  • Bum-Joon Kim

    (Jae Yong Shin is an Associate Professor of Accounting at Seoul National University. Sung-Choon Kang is an Associate Professor of Human Resources at Seoul National University. Jeong-Hoon Hyun received his PhD in Accounting from Seoul National University. Bum-Joon Kim received his PhD in Accounting from Seoul National University.)

Abstract

The authors examine factors influencing the executive pay multiple (executive-employee pay disparity) and its effects on performance. Using unique data from Korea, where all publicly listed firms are required to provide detailed information on average employee pay in their annual reports, they find that a substantial portion of cross-sectional variation in the executive pay multiple is explained by the firm’s economic and political characteristics. Results also indicate that the executive pay multiple has a statistically significant negative relation with subsequent operating and stock return performance. A two-stage approach, however, reveals that the performance effects of the executive pay multiple are likely to be influenced more by deviations from the expected executive pay multiple, estimated using the first-stage determinant model, than by the absolute pay multiple per se. The study sheds light on recent debates regarding the usefulness of executive pay multiple disclosure.

Suggested Citation

  • Jae Yong Shin & Sung-Choon Kang & Jeong-Hoon Hyun & Bum-Joon Kim, 2015. "Determinants and Performance Effects of Executive Pay Multiples," ILR Review, Cornell University, ILR School, vol. 68(1), pages 53-78, January.
    • Handle: RePEc:sae:ilrrev:v:68:y:2015:i:1:p:53-78
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    Cited by:

    1. Ethan Rouen, 2017. "Rethinking Measurement of Pay Disparity and its Relation to Firm Performance," Harvard Business School Working Papers 18-007, Harvard Business School.
    2. Mohammed Saud Mira* & Dr. Yap Voon Choong & Dr. Chan Kok Thim, 2018. "The Role of Job Satisfaction as Mediator Between Human Resource Practices and Employees' Performance Among the Cargos' Employees at Saudi Ports Authority Based on the Motivation Theories," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 91-105:4.

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