If the CEO’s High Salary Isn’t Justified to Employees, Firm Performance May Suffer

Dina Gerdeman writes about the other meaning of equity compensation — the perception of fairness in pay throughout the company, as seen by both employees and investors:

The gap between the large sums that CEOs take home versus average employee pay is taking on added importance in 2018, as public companies in the United States are mandated for the first time to disclose pay ratios between the CEO and employees. Harvard Business School Assistant Professor Ethan Rouen warns that if those disclosures are not made with proper context, they could ignite worker backlash and harm productivity.“

When you hear the amount that a CEO makes, it is going to seem outrageous. People are going to react with passion,” Rouen says. “So, it’s going to fall on every company that has to disclose these figures to provide some explanation and give a measured response justifying the pay disparity.”

Connections between wage disparity and company performance are detailed in Rouen’s recent working paper, Rethinking Measurement of Pay Disparity and its Relation to Firm Performance.

In essence, firms can flourish when they pay their workers fairly—and struggle when they don’t, the research suggests.

Source: If the CEO’s High Salary Isn’t Justified to Employees, Firm Performance May Suffer

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