The soaring compensation levels of chief executive officers (CEOs) have spurred an intense debate about its outcomes. This paper examines an understudied outcome in this regard: employee engagement. Using a dynamic panel model with data from 336 publicly listed firms across 26 countries, we find that employee engagement is generally unaffected by CEO (over)compensation. However, negative effects emerge under specific conditions. First, employee engagement declines with negative media coverage about CEO compensation. Second, employee engagement declines with greater CEO (over)compensation in the financial sector, which is a sector with extraordinary levels of CEO compensation and compensation controversies. The findings suggest that a ceiling effect exists, at which point negative effects emerge and employee engagement becomes relevant in determining CEO compensation policies, while the general insensitivity of employee engagement to CEO compensation can help explain the soaring CEO compensation levels.
Bibliographical noteJEL Classifcation: D63 · M12 · I31 · J28 · J33
This project/publication was made possible through the support of a grant from Templeton World Charity Foundation Inc (Grant 0141). The opinions expressed in this publication are those of the author(s) and do not necessarily reflect the views of Templeton World Charity Foundation, Inc.
Publisher Copyright: © 2022, The Author(s).