Income differentials and corporate performance

Author： Pryce Adrian Kakabadse Nada K. Lloyd Tom

ISSN： 1472-0701

Source： Corporate Governance: The Int J of Effective Board Performance, Vol.11, Iss.5, 2011-10, pp. : 587-600

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Abstract

Purpose - This paper seeks to make the case for new research into the perceived fairness and impact of executive pay. Design/methodology/approach - The paper reviews the literature regarding executive compensation and corporate performance and examines the evidence that a more egalitarian approach to pay could be justified in terms of long-term shareholder value. Findings - There would appear to be no evidence to suggest that the growing gap between the pay of executives and that of the average employee generates long-term enterprise value, and it may even be detrimental to firms, if not the liberal capitalist consensus on which the corporate licence to operate is based. Research limitations/implications - The paper outlines a new approach to tracking income differentials with corporate performance through the development of a corporate Gini coefficient "league table". Social implications - The proposed research is expected to point towards better practice in executive remuneration, and support the growing momentum for a sustainable and enlightened approach to business, in which the key goal is long-term enterprise value based on a fair distribution of the rewards of business. Originality/value - In producing a deeper understanding of the impact of widening income differentials, the paper should be of interest to senior executives in publicly quoted companies as well as press commentators, government officials and academics.

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