Are Overpaid Executives Meaner?

Abstract:
The topic of executive compensation has received tremendous attention over the years from both the research community and popular media. In this paper, we examine a heretofore ignored consequence of rising executive compensation. Specifically, we claim that higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers. We present findings from two studies - an archival study and a laboratory experiment – that show that increasing executive compensation results in executives behaving meanly toward those lower down the hierarchy. We discuss the implications of our findings for organizations and offer some solutions to the problem.

They conducted the study by scoring companies with “strength points” and “weakness points,” assigning strength points to companies that offered perks like employee profit sharing and deducting points for companies that had been penalized for employee mistreatment. The researchers then examined each company’s executive compensation and looked for any correlations between increasing income and increasing meanness.

Their conclusion was this: “higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers.”

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