IDEAS home Printed from https://ideas.repec.org/p/sip/dpaper/05-020.html
   My bibliography  Save this paper

Distributive Justice and CEO Compensation

Author

Listed:
  • Guillermina Jasso

    (New York University)

  • Eva M. Meyersson Milgrom

    (Stanford University)

Abstract

This paper develops a framework for studying individuals’ ideas about what constitutes just compensation for chief executive officers (CEOs) and reports estimates of just CEO pay and the principles guiding ideas of justice. The sample consists of students pursuing a Master of Business Administration (MBA) degree in Sweden and the United States. The framework, based on justice theory and making use of Rossi’s factorial survey method, enables assessment of ideas of fairness in CEO compensation, including (1) the just CEO compensation, in the eyes of each observer; (2) the principles of microjustice – observers’ ideas about “who should get what” based on characteristics of CEOs and their firms; and (3) principles of macrojustice – ideas about the just level and dispersion in compensation across all CEOs. Our estimates yield the following main results: First, there is broad agreement on the median just CEO compensation but substantial inter-individual variation in the principles of microjustice and the other principles of macrojustice. Second, there is remarkable similarity in the distributions of the principles of microjustice and macrojustice across the MBA groups. Other important results include a pervasive gender attentiveness among MBA students and tolerance for large variability in CEO pay.

Suggested Citation

  • Guillermina Jasso & Eva M. Meyersson Milgrom, 2006. "Distributive Justice and CEO Compensation," Discussion Papers 05-020, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:05-020
    as

    Download full text from publisher

    File URL: http://www-siepr.stanford.edu/repec/sip/05-020.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rosen, S., 1990. "Contracts and Market for Executives," University of Chicago - Economics Research Center 90-12, Chicago - Economics Research Center.
    2. Conyon, Martin J & Murphy, Kevin J, 2000. "The Prince and the Pauper? CEO Pay in the United States and United Kingdom," Economic Journal, Royal Economic Society, vol. 110(467), pages 640-671, November.
    3. Roine, Jesper & Waldenstrom, Daniel, 2008. "The evolution of top incomes in an egalitarian society: Sweden, 1903-2004," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 366-387, February.
    4. Thomas Piketty & Emmanuel Saez, 2006. "The Evolution of Top Incomes: A Historical and International Perspective," American Economic Review, American Economic Association, vol. 96(2), pages 200-205, May.
    5. George P. Baker & Brian J. Hall, 2004. "CEO Incentives and Firm Size," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 767-798, October.
    6. Brian J. Hall & Jeffrey B. Liebman, 1998. "Are CEOs Really Paid Like Bureaucrats?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 653-691.
    7. Jan Fidrmuc & Peter Huber, 2007. "Introduction," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(4), pages 281-286, September.
    8. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563, Elsevier.
    9. Arts, Wil & Hermkens, Piet & van Wijck, Peter, 1991. "Income and the idea of justice: principles, judgments, and their framing/s," Journal of Economic Psychology, Elsevier, vol. 12(1), pages 121-140, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sauer, Carsten & Liebig, Stefan & Auspurg, Katrin & Hinz, Thomas & Donaubauer, Andy & Schupp, Jürgen, 2009. "A Factorial Survey on the Justice of Earnings within the SOEP-Pretest 2008," IZA Discussion Papers 4663, Institute of Labor Economics (IZA).
    2. Edi Karni & Zvi Safra, 2008. "Moral sentiments and social choice," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 30(3), pages 427-446, April.
    3. Andreas Kuhn, 2010. "The Public Perception and Normative Valuation of Executive Compensation: An International Comparison," NRN working papers 2010-13, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
    4. Abraham, Martin, 2007. "Wann werden Löhne als gerecht eingeschätzt? : eine tauschtheoretische Betrachtung der Lohngerechtigkeit auf dem Arbeitsmarkt (When are wages evaluated as fair? : a look at wage fairness on the labor m," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 40(1), pages 9-22.
    5. Rüya Koçer & Herman Werfhorst, 2012. "Education systems and the formation of societal consensus on justice," Quality & Quantity: International Journal of Methodology, Springer, vol. 46(2), pages 451-470, February.
    6. Jasso, Guillermina, 2008. "Shall We Kill or Enslave Caesar? Analyzing the Caesar Model," IZA Discussion Papers 3460, Institute of Labor Economics (IZA).
    7. Edi Karni & Zvi Safra, 2003. "Moral Sentiments and Social Choice: Fairness Considerations in University Admissions," Economics Working Paper Archive 492, The Johns Hopkins University,Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 49-100.
    2. Yaowen Shan & Terry Walter, 2016. "Towards a Set of Design Principles for Executive Compensation Contracts," Abacus, Accounting Foundation, University of Sydney, vol. 52(4), pages 619-684, December.
    3. Paul Gregg & Sarah Jewell & Ian Tonks, 2005. "Executive Pay and Performance in the UK 1994-2002," The Centre for Market and Public Organisation 05/122, The Centre for Market and Public Organisation, University of Bristol, UK.
    4. Page, T. Beau, 2018. "CEO attributes, compensation, and firm value: Evidence from a structural estimation," Journal of Financial Economics, Elsevier, vol. 128(2), pages 378-401.
    5. Frédéric TEULON, 2014. "CEO compensation and topmanagement incentives. Internal or social problems ?," Working Papers 2014-187, Department of Research, Ipag Business School.
    6. Cashman, George D., 2010. "Pay-performance sensitivity and firm size: Insights from the mutual fund industry," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 400-412, September.
    7. Conyon, Martin J. & He, Lerong, 2011. "Executive compensation and corporate governance in China," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1158-1175, September.
    8. Carlo Cambini & Sara De Masi & Laura Rondi, 2013. "Incentive Compensation and Incentive Regulation: Empirical Evidence," IEFE Working Papers 58, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    9. Bayer, Christian & Burhop, Carsten, 2009. "Corporate governance and incentive contracts: Historical evidence from a legal reform," Explorations in Economic History, Elsevier, vol. 46(4), pages 464-481, October.
    10. Kato, Takao & Kim, Woochan & Lee, Ju Ho, 2007. "Executive compensation, firm performance, and Chaebols in Korea: Evidence from new panel data," Pacific-Basin Finance Journal, Elsevier, vol. 15(1), pages 36-55, January.
    11. Carola Frydman & Dirk Jenter, 2010. "CEO Compensation," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 75-102, December.
    12. Jeffrey R. Brown & Nellie Liang & Scott Weisbenner, 2007. "Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut," Journal of Finance, American Finance Association, vol. 62(4), pages 1935-1965, August.
    13. James, Hui & Benson, Bradley W. & Wu, Chen (Ken), 2017. "Does CEO ownership affect payout policy? Evidence from using CEO scaled wealth-performance sensitivity," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 328-345.
    14. Marco Celentani & Rosa Loveira-Pazó, 2004. "What form of relative performance evaluation?," Economics Working Papers 744, Department of Economics and Business, Universitat Pompeu Fabra.
    15. Alex Edmans & Xavier Gabaix & Augustin Landier, 2007. "A Calibratable Model of Optimal CEO Incentives in Market Equilibrium," NBER Working Papers 13372, National Bureau of Economic Research, Inc.
    16. Michael L. Bognanno, 2010. "Executive Compensation: A Brief Review," DETU Working Papers 1002, Department of Economics, Temple University.
    17. Dittmann, Ingolf & Maug, Ernst & Zhang, Dan, 2011. "Restricting CEO pay," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 1200-1220, September.
    18. Besancenot, Damien & Vranceanu, Radu, 2007. "Equilibrium (dis)honesty," Journal of Economic Behavior & Organization, Elsevier, vol. 64(2), pages 232-249, October.
    19. Fernandes, Nuno, 2008. "EC: Board compensation and firm performance: The role of "independent" board members," Journal of Multinational Financial Management, Elsevier, vol. 18(1), pages 30-44, February.
    20. Cuñat, Vicente & Guadalupe, Maria, 2009. "Executive compensation and competition in the banking and financial sectors," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 495-504, March.

    More about this item

    Keywords

    justice theory; fairness; CEO compensation; factorial survey method; MBA students; gender; inequality; Gini coefficient; Atikinson measure; Theil's inequality measures;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D6 - Microeconomics - - Welfare Economics
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sip:dpaper:05-020. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Anne Shor (email available below). General contact details of provider: https://edirc.repec.org/data/cestaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.