The two sides of CEO pay injustice: A power law conceptualization of CEO over and underpayment

Abstract

Purpose: The purpose of this study was to examine the extent to which chief executive officers (CEOs) deserve the pay they receive both in terms of over and underpayment. Design/methodology/approach: Rather than using the traditional normal distribution view in which CEO performance clusters around the mean with relatively little variance, the authors adopt a novel power law approach. They studied 22 industries and N = 4,158 CEO-firm combinations for analyses based on Tobin’s Q and N = 5,091 for analyses based on return on assets. Regarding compensation, they measured the CEO distribution based on total compensation and three components of CEO total pay: salary, bonus, and value of options e..