The influence of CEO compensation on employee engagement

Martijn Hendriks (), Martijn Burger and Harry Commandeur
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Martijn Hendriks: Erasmus University Rotterdam
Harry Commandeur: Erasmus University Rotterdam

Review of Managerial Science, 2023, vol. 17, issue 2, No 8, 607-633

Abstract: Abstract The soaring compensation levels of chief executive officers (CEOs) have spurred an intense debate about its outcomes. This paper examines an understudied outcome in this regard: employee engagement. Using a dynamic panel model with data from 336 publicly listed firms across 26 countries, we find that employee engagement is generally unaffected by CEO (over)compensation. However, negative effects emerge under specific conditions. First, employee engagement declines with negative media coverage about CEO compensation. Second, employee engagement declines with greater CEO (over)compensation in the financial sector, which is a sector with extraordinary levels of CEO compensation and compensation controversies. The findings suggest that a ceiling effect exists, at which point negative effects emerge and employee engagement becomes relevant in determining CEO compensation policies, while the general insensitivity of employee engagement to CEO compensation can help explain the soaring CEO compensation levels.

Keywords: Job attitudes; Media coverage; Financial sector; Executive compensation; Compensation controversy (search for similar items in EconPapers)
JEL-codes: D63 I31 J28 J33 M12 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11846-022-00538-4

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