Societal Equality Sentiment and Executive Compensation

Onal, Bunyamin; Petmezas, Dimitris; Xiong, Nan

Abstract

Using elections that reveal changes in countries’ leniency on the left-right political spectrum, we examine whether societal sentiment regarding income inequality affects executive compensation. We find that elections that bring left-leaning (pro-equality) political leaders to power are associated with significantly lower CEO pay and this impact begins in the year of such elections, not before. We further show that a rise in pro-equality sentiment restrains powerful CEOs from extracting rents. However, such sentiment also imposes value-damaging limits on incentives of senior executives in a given firm or industry. Our results are robust to a host of alternative measures and specifications.

Citation

Onal, B., Petmezas, D., & Xiong, N. (2022). Societal Equality Sentiment and Executive Compensation. Journal of Corporate Finance, 77, Article 102314. https://doi.org/10.1016/j.jcorpfin.2022.102314

• Journal Article Type: Article
• Acceptance Date: Oct 21, 2022
• Online Publication Date: Nov 1, 2022
• Publication Date: 2022-12
• Deposit Date: Oct 24, 2022
• Publicly Available Date: May 2, 2024
• Journal: Journal of Corporate Finance
• Print ISSN: 0929-1199
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 77
• Article Number: 102314
• DOI: https://doi.org/10.1016/j.jcorpfin.2022.102314
• Public URL: https://durham-repository.worktribe.com/output/1188153