Title

Fair Pay for Chief Executive Officers: Maximizing Firm Value by Minimizing Income Disparity

Document Type

Chapter of Book

Publication Date

2006

Abstract

This article links the growing income disparity in America to a possible metric that can be used to better assess the appropriate level of executive compensation. The article reviews the intellectual, commercial, cultural, and judicial forces that have each contributed toward the significant rise in executive compensation. Of particular note is the unqualified failure of courts and outside directors to provide meaningful supervision of executive compensation. This failure in part reflects the failure of society to develop guidance regarding what is the appropriate level of compensation for executives of public companies. The article concludes by reviewing evidence that income disparity within the firm, particularly the gap between executives and other employees within the organization are associated with firms that have high employee turnover, poor morale, and lower productivity levels than in firms where disparities are not as great. Herein lies the suggested standard that can be used for determining what is fair pay for CEOs and others.