Chief executive officers who are paid less than their peers are far more likely to lay off their employees to increase their own pay, a Rutgers University study found.
Researchers from the Rutgers School of Management and Labor Relations looked at data from 140 of the S&P 500 firms between 1992 and 2014, which encompassed the “consumer staples, financial services and IT industries.” The average salary among the CEOs was $10 million, according to the study.
The so-called “underpaid” CEOs, the study found, laid off 1,200 employees during the time period, and these CEOs were four times more likely to trigger layoffs than higher paid chief executives. In the year following the layoffs, their salary and benefits increased an average $600,000.
“Research suggests CEOs view compensation as a symbol of prestige and status. Even with a seven- or eight-figure salary, they might feel slighted if they are earning less than executives at other firms,” Scott Bentley, who led the study while a Ph.D. candidate at Rutgers University and is now an assistant professor at Binghamton University, said in a release.
Stock performances also increased an average 2 percent while profits increased an average 18 percent, the study found.
“On one hand, we’ve seen a push to rein in excessive CEO compensation packages by giving investors a say on pay. On the other hand, underpaying CEOs could lead to layoffs, which have lasting negative effects on the terminated employees and may harm the firm’s reputation,” said Rebecca Kehoe, an associate professor at the Rutgers School of Management and Labor Relations who co-authored the study.