• Impacts of Executive Compensation on Employee Wages

      Zhu, Baoqi; Faculty of Business Programs
      We study the impact of CEO equity-based compensation (EBC) on employee wages. Using pay-performance sensitivity (PPS) as a measure for CEO equity-based compensation, we find that CEOs with higher EBC tend to pay their employees lower wages. We also examine the impact of EBC on average employee wage in different industries and find that such an impact is more evident in non-technology firms than in technology firms. Finally, we find that CEOs with higher pay-performance sensitivities are more likely to depress employee wages when the business cycle shows downturn. While the literature of CEO compensation suggests that EBC can mitigate agency conflicts between managers and shareholders, we find that the high level of EBC can create another aspect of agency conflicts between managers and shareholders, contributing to income inequality even within corporations.