Linking Societal Trust and CEO Compensation
- 509 Downloads
We examine the association between societal trust and the levels of CEO compensation and the proportion of equity-based compensation of 897 firm-years from 18 countries over the 2007–2013 period. We find both the levels of CEO compensation as well as the proportion of equity-based compensation to be lower in countries with higher levels of societal trust. This suggests that costly regulations on CEO compensation may not be as necessary in jurisdictions with higher levels of societal trust. We also examine the association between pay disparity and societal trust. Consistent with our finding of lower pay at the CEO rank, we find pay disparities are lower in countries with higher levels of societal trust.
KeywordsTrust CEO pay Culture Income disparity
Funding from the Social Sciences and Humanities Research Council (SSHRC) of Canada is gratefully acknowledged.
- Ahern, K. R., Daminelli, D., & Fracassi, C. (2012). Lost in translation? The effect of cultural values on mergers around the world. Journal of Financial Economics, 117, 165–189.Google Scholar
- Arrow, K. J. (1972). Gifts and exchanges. Philosophy & Public Affairs, 1(4), 343–362.Google Scholar
- Arrow, K. J. (1974). The limits of organization. Philadelphia, PA: University of Pennsylvania, Fels Center of Government.Google Scholar
- Bottazzi, L., Da Rin, M., & Hellmann, T. F. (2011). The importance of trust for investment: Evidence from venture capital. National Bureau of Economic Research, Working Paper, Cambridge, MA. http://www.nber.org/papers/w16923.
- Bratton, W. W., & Blair, M. M. (2003). Restoring trust in America’s business institutions. Georgetown Law and Economics Research Paper, 784526, 05-25.Google Scholar
- Crawford, S., Nelson, K. K., & Rountree, B. (2014). The CEO–employee pay ratio. SSRN Working Paper. http://ssrn.com/abstract=2529112.
- Darley, J. M. (2004). Commitment, trust, and worker effort expenditure in organizations. In R. M. Kramer & K. S. Cook (Eds.), Trust and distrust in organizations: Dilemmas and approaches. New York: Russell Sage Foundation.Google Scholar
- Fukuyama, F. (1995). Trust: Social virtues and the creation of prosperity. New York: Free Press.Google Scholar
- Hechter, M., & Opps, K. D. (2001). What have we learned about the emergence of social norms? In M. Hechter & K. D. Opps (Eds.), Social norms. New York: Russell Sage Foundation.Google Scholar
- Henderson, A. D., & Fredrickson, J. W. (1996). Information-processing demands as a determinant of CEO compensation. Academy of Management Journal, 39(3), 575–606.Google Scholar
- Hofstede, G. H. (1984). Culture’s consequences: International differences in work-related values (Vol. 5). Newbury Park, CA: Sage.Google Scholar
- Hofstede, G. H. (2001). Culture’s consequences: Comparing values, behaviors, institutions and organizations across nations. Thousand Oaks, CA: Sage.Google Scholar
- Jasso, G. (2008). A new unified theory of sociobehavioural forces. European Sociological Review, 24(4), 411–434.Google Scholar
- Kymlicka, W. (1989). Liberalism, community, and culture. Oxford: Oxford University Press.Google Scholar
- Larcker, D. F., & Tayan, B. (2012). What is CEO talent worth?. Stanford, CA: Rock Center for Corporate Governance—Stanford University.Google Scholar
- Larcker, D. F., & Tayan, B. (2013). Trust: The unwritten contract in corporate governance. Stanford, CA: Rock Center for Corporate Governance—Stanford University.Google Scholar
- Miller, G. J. (2004). Monitoring, rules, and the control paradox: Can the good soldier Svejk be trusted? In R. M. Kramer & K. S. Cook (Eds.), Trust and distrust in organizations: Dilemmas and approaches. New York: Russell Sage Foundation.Google Scholar
- Murphy, K. J. (1999). Executive compensation. In O. Ashenfelter & D. Card (Eds.), Handbook of labor economics (Vol. 3, pp. 2485–2563). Amsterdam: North Holland.Google Scholar
- Nanda, D., & Wysocki, P. (2011). The relation between trust and accounting quality. Working Paper, University of Miami. http://www.bu.edu/questrom/files/2011/02/Nanda-Wysocki-2011.pdf.
- Pevzner, M., Xie, F., & Xin, X. (2014). When firms talk, do investors listen? The role of trust in stock market reactions to corporate earnings announcements. Journal of Financial Economics, 117(1), 190–223. doi: 10.1016/j.jfineco.2013.08.004.
- Reina, D. S., & Reina, M. L. (1999). Trust and betrayal in the workplace: Building effective relationships in your organization. San Francisco: Berrett-Koehler.Google Scholar
- Solomon, S. D. (2013, August 27). A simple solution on CEO pay is not so simple. The New York Times.Google Scholar
- Sorkin, A. R. (2015, January 26). S.E.C. has yet to set rule on tricky ratio of C.E.O.’s pay to workers. The New York Times.Google Scholar
- Starnes, B. J., Truhon, S. A., & McCarthy, V. (2010). Organizational trust: Employer–employee relationships. ASQ Human Development & Leadership Division. http://rube.asq.org/hdl/2010/06/a-primer-on-organizational-trust.pdf.
- Towers Perrin. (1997–2001). Managing global pay and benefits: Worldwide total remuneration. New York: Towers Perrin.Google Scholar
- Williams, R. M. (1951). American society: A sociological interpretation. New York: Knopf.Google Scholar
- Zingales, L. (2015). Does finance benefit society? Chicago Booth Research Paper No. 15-09. SSRN: http://ssrn.com/abstract=2585194.