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Is there fire? Executive compensation and employee attitudes

Elizabeth T. Welsh (Department of Management, University of St Thomas, St Paul, Minnesota, USA)
Deshani B. Ganegoda (Department of Management, University of Central Florida, Orlando, Florida, USA)
Richard D. Arvey (Department of Management and Organization, National University of Singapore, Singapore)
Jack W. Wiley (High Performance Institute, Kenexa, Minneapolis, Minnesota, USA)
John W. Budd (Department of Work and Organizations, University of Minnesota, Minneapolis, Minnesota, USA)

Personnel Review

ISSN: 0048-3486

Article publication date: 6 April 2012

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Abstract

Purpose

This paper aims to examine the relationship between CEO compensation and employee attitudes.

Design/methodology/approach

Based upon equity/organizational justice theories and the CEO compensation literature, hypotheses were developed which suggest that executive compensation and employee attitudes will be related. These hypotheses were tested by linking a large‐scale survey of employee attitudes to CEO compensation data for public companies based in the USA.

Findings

Employee attitudes appear to be related to some measures of CEO compensation, although sometimes the relationship that was found was negative and sometimes it was positive, but in all cases the effect size was quite small. 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.

Research limitations/implications

Limitations of this study include the inability to show a causal relationship, limited external validity, equations that explain only a small amount of variance and attitudinal measures that are single source. Future research which helps understand what employees know and why differences across organizations exist would be helpful.

Practical implications

From an employee attitude perspective, changing performance‐based components of CEO compensation (e.g. bonus) is better than changing CEO salary. However, if salary is going to be increased, a communication plan for employees should be developed.

Originality/value

Whether executive compensation has an impact on employees' attitudes has not been explored previously.

Keywords

Citation

Welsh, E.T., Ganegoda, D.B., Arvey, R.D., Wiley, J.W. and Budd, J.W. (2012), "Is there fire? Executive compensation and employee attitudes", Personnel Review, Vol. 41 No. 3, pp. 260-282. https://doi.org/10.1108/00483481211212742

Publisher

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Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited

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