Is There Fire? Executive Compensation and Employee Attitudes
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Executive Compensation, Employee Attitudes
While CEO compensation has received significant, negative attention in the popular press, whether it has an impact on employees’ attitudes has not been explored previously. Therefore, the purpose of this study was to examine how CEO compensation affects employees’ attitudes in organizations. Competing hypotheses were proposed, one set suggesting that executive compensation would be negatively related to employee attitudes and another set suggesting that it would be positively related to employee attitudes.
Results of a large-scale survey study found that in certain cases CEO compensation was positively while in other cases it was negatively related to employee attitudes. Specifically, change in CEO salary was negatively related to evaluation of senior management and general satisfaction. However, change in total CEO compensation was positively related to evaluation of senior management and general satisfaction, while CEO bonus level was positively related to general satisfaction. In all cases, however, the observed effect sizes were quite small - leading to the conclusion that CEO compensation has at most a minor relationship with employee attitudes.