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The influence of CEO compensation on employee engagement

Author

Listed:
  • Martijn Hendriks

    (Erasmus University Rotterdam
    Erasmus University Rotterdam)

  • Martijn Burger

    (Erasmus University Rotterdam
    Erasmus University Rotterdam
    Open University of the Netherlands)

  • Harry Commandeur

    (Erasmus University Rotterdam)

Abstract

The soaring compensation levels of chief executive officers (CEOs) have spurred an intense debate about its outcomes. This paper examines an understudied outcome in this regard: employee engagement. Using a dynamic panel model with data from 336 publicly listed firms across 26 countries, we find that employee engagement is generally unaffected by CEO (over)compensation. However, negative effects emerge under specific conditions. First, employee engagement declines with negative media coverage about CEO compensation. Second, employee engagement declines with greater CEO (over)compensation in the financial sector, which is a sector with extraordinary levels of CEO compensation and compensation controversies. The findings suggest that a ceiling effect exists, at which point negative effects emerge and employee engagement becomes relevant in determining CEO compensation policies, while the general insensitivity of employee engagement to CEO compensation can help explain the soaring CEO compensation levels.

Suggested Citation

  • Martijn Hendriks & Martijn Burger & Harry Commandeur, 2023. "The influence of CEO compensation on employee engagement," Review of Managerial Science, Springer, vol. 17(2), pages 607-633, February.
    • Handle: RePEc:spr:rvmgts:v:17:y:2023:i:2:d:10.1007_s11846-022-00538-4
    DOI: 10.1007/s11846-022-00538-4
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    More about this item

    Keywords

    Job attitudes; Media coverage; Financial sector; Executive compensation; Compensation controversy;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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