CEO-employee pay ratio and labor investment efficiency

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dc.contributor.authorLi, Y.
dc.contributor.authorCheong, C.S.
dc.contributor.authorCanil, J.
dc.date.issued2024
dc.description.abstractThis 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.
dc.description.statementofresponsibilityYulin Li, Chee Seng Cheong, Jean Canil
dc.identifier.citationFinance Research Letters, 2024; 67:105761-1-105761-9
dc.identifier.doi10.1016/j.frl.2024.105761
dc.identifier.issn1544-6123
dc.identifier.issn1544-6131
dc.identifier.orcidLi, Y. [0000-0002-1096-7325]
dc.identifier.orcidCheong, C.S. [0000-0001-8120-0167]
dc.identifier.orcidCanil, J. [0000-0002-3646-4320]
dc.identifier.urihttps://hdl.handle.net/2440/144896
dc.language.isoen
dc.publisherElsevier BV
dc.rights© 2024 The Author(s). Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
dc.source.urihttp://dx.doi.org/10.1016/j.frl.2024.105761
dc.subjectCEO-employee pay ratio; Labor investment efficiency; Talent assignment theory; Equity theory
dc.titleCEO-employee pay ratio and labor investment efficiency
dc.typeJournal article
pubs.publication-statusPublished

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