Determinants and performance effects of executive pay multiples: Evidence from Korea

Jae Yong Shin, Sung Choon Kang, Jeong Hoon Hyun, Bum Joon Kim

Research output: Contribution to journalReview articlepeer-review

30 Scopus citations

Abstract

The authors examine factors influencing the executive pay multiple (executive-employee pay disparity) and its effects on performance. Using unique data from Korea, where all publicly listed firms are required to provide detailed information on average employee pay in their annual reports, they find that a substantial portion of crosssectional variation in the executive pay multiple is explained by the firm's economic and political characteristics. Results also indicate that the executive pay multiple has a statistically significant negative relation with subsequent operating and stock return performance. A two-stage approach, however, reveals that the performance effects of the executive pay multiple are likely to be influenced more by deviations from the expected executive pay multiple, estimated vising the first-stage determinant model, than by the absolute pay multiple per se. The study sheds light on recent debates regarding the usefulness of executive pay multiple disclosure.

Original languageEnglish
Pages (from-to)53-78
Number of pages26
JournalILR Review
Volume68
Issue number1
DOIs
StatePublished - Jan 2015

Bibliographical note

Publisher Copyright:
© The Author(s) 2014.

Keywords

  • Equity theory
  • Executive pay multiple
  • Pay disparity
  • Performance
  • Tournament theory
  • Turnover

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