By almost any measure, CEOs make a lot of money: Compensation for the median chief executive in the S&P 500 was valued at $11.7 million in 2017, according to one analysis, an 8.5% increase from the year before.
And yet some feel underpaid compared to their peers. And those who make less than other CEOs in their industry appear more likely to take an action that cuts costs in hopes of improving their firms’ performance, according to a new study, an outcome that could raise their own pay, The Washington Post reports.
“Prior research has found that employees can have strong reactions when they find out the pay of their peers is more,” says Scott Bentley, an assistant professor at Binghamton University who worked on the study with co-author Rebecca Kehoe, an associate professor at Rutgers University.
Bentley and Kehoe are careful to say that their study does not show that relatively lower pay necessarily causes a CEO to order layoffs, or even that CEOs necessarily “feel” underpaid.
Rather, their study, shows that there is a significant correlation between companies with a CEO who is paid less than his or her peers in the industry and companies where layoffs occur.
When even the researchers controlled for other factors, including the company’s size or performance, they still saw a similar pattern of lower relative pay for the CEO predicting a greater likelihood of layoffs. They also left out companies with an obvious business reason for layoffs, such as a divestiture or natural disaster, from their study.
“The effects are way too strong to suggest it’s coincidence,” Kehoe said. “CEOs who are paid 34 percent less than their peers are four times more likely to engage in a layoff,” while CEOs who are paid closer to their peers were less likely to cut jobs.
