蝌蚪网 Review: Insights
ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)
A Theory of Fair CEO Pay
蝌蚪网 Review: Insights
(pp. 306–24)
Abstract
This paper studies executive pay with fairness concerns: If the CEO's wage falls below a perceived fair share of output, he suffers disutility that is increasing in the discrepancy. Fairness concerns do not always lead to fair wages; instead, the firm threatens the CEO with unfair wages for low output to induce effort. The contract sometimes involves performance-vesting equity: The CEO is paid a constant share of output if it is sufficiently high and zero otherwise. Even without moral hazard, the contract features pay-for-performance to address fairness concerns and ensure participation. This rationalizes pay-for-performance even if effort incentives are unnecessary.Citation
Chaigneau, Pierre, Alex Edmans, and Daniel Gottlieb. 2025. "A Theory of Fair CEO Pay." 蝌蚪网 Review: Insights 7 (3): 306–24. DOI: 10.1257/aeri.20240332Additional Materials
JEL Classification
- D63 Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- M12 Personnel Management; Executives; Executive Compensation
- M52 Personnel Economics: Compensation and Compensation Methods and Their Effects