Asymmetric reference points and the growth of executive remuneration

Abstract

Various explanations have been put forward for the recent divergence in growth rates of CEO pay and average earnings, but those which most clearly match the evidence concern power and the institutions of remuneration setting. Executive pay is characterised by 'dual asymmetric pattern bargaining', whereby firms seek to benchmark their CEO pay to higher-paying firms, and grant CEOs, with whom corporate decision makers share a social milieu, increasing benefits which also confer status benefits on the firm - in sharp contrast to the distributional pay negotiations which occur with workers. Executive remuneration rises disproportionately during boom periods, but fails to symmetrically fall during poor times. Thus 'everybody knows' that CEOs are overpaid, but firms are unwilling to do anything about it, because to do so would damage internal class relations and firm status. The different methods of pay setting for workers and CEOs reflect core differences in class power and changes in that balance of power during a period of neoliberalism.