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New study focuses on CEO pay gains

In the business world, a company’s success often depends on its leadership. The right CEO or executives can turn a small company into a global leader. Because of this important role they play, it is not uncommon for Texas companies to pay their CEOs a substantial income and provide other perks. However, some people are calling for more employment regulations when it comes to CEO compensation. A recent study focused on whether CEO pay gains are justified.

A recent study from the Economic Policy Institute, a liberal think tank, echoes other studies that show a negative impact from high inequality in pay. The authors build on previous research to reach the conclusion that the pay of top CEOs over the country’s largest corporations is not necessarily based on the talents and abilities of those executives, nor is the pay scale directed by fair competition in the marketplace. If this is correct, then lowering the pay of the top CEOs would not affect the corporations’ ability to excel in the marketplace, according to the study.

To reach these conclusions, the authors of the paper focused their research on those who run the largest firms rather than including other organizations, stating that this provides a more accurate representation of the inequality. These companies are at the forefront of the business community, and as leaders, they are responsible for the disparities elsewhere in the market, they claim.

Because the employment contracts for high wage earners in corporations are designed to provide incentives for those who are leading the company, the aspects such as performance-contingent pay and equity compensation play a big role in the resulting income. Federal law regulates these, and many companies seek the advice of an attorney when putting together an executive compensation plan.

Source: Wall Street Journal, “Top-CEO Pay Isn’t Driven By Talent, New Study Says,” Pedro Nicolaci Da Costa, June 22, 2015

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