Income differentials and corporate performance

Abstract

Purpose

This paper seeks to make the case for new research into the perceived fairness and impact of executive pay.

Design/methodology/approach

The paper reviews the literature regarding executive compensation and corporate performance and examines the evidence that a more egalitarian approach to pay could be justified in terms of long‐term shareholder value.

Findings

There would appear to be no evidence to suggest that the growing gap between the pay of executives and that of the average employee generates long‐term enterprise value, and it may even be detrimental to firms, if not the liberal capitalist consensus on which the corporate licence to operate is based.

Research limitations/implications

The paper outlines a new approach to tracking income differentials with corporate performance through the development of a corporate Gini coefficient “league table”.

Social implications

The proposed research is expected to point towards better practice in executive remuneration, and support the growing momentum for a sustainable and enlightened approach to business, in which the key goal is long‐term enterprise value based on a fair distribution of the rewards of business.

Originality/value

In producing a deeper understanding of the impact of widening income differentials, the paper should be of interest to senior executives in publicly quoted companies as well as press commentators, government officials and academics.

Citation

Pryce, A., Kakabadse, N.K. and Lloyd, T. (2011), "Income differentials and corporate performance", Corporate Governance, Vol. 11 No. 5, pp. 587-600. https://doi.org/10.1108/14720701111176993