Article

When Executives Rake in Millions: The Callous Treatment of Lower Level Employees

SSRN Electronic Journal 07/2011; DOI: 10.2139/ssrn.1612486

ABSTRACT The topic of top manager compensation has received tremendous attention over the years from both the research community and the popular media. In this paper, we examine a heretofore ignored consequence of rising top manager compensation. Specifically, we argue that when top managers receive high levels of compensation, they tend to treat lower level employees callously. Further, we present findings from two studies that support this contention. In an archival study of large public US corporations, we show that firms that award their top managers high levels of compensation employ less benevolent and harsher employee relations practices. In a laboratory experiment we show that subjects assigned to the managerial role and who receive high levels of compensation are more likely to fire their subordinates than those who receive low levels of compensation. We discuss the implications of our findings for organizations and offer some tentative remedies to address the broader issue of excessive executive compensation.

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