Do employees who compare themselves to the CEO matter for executive compensation? We hypothesize employees who are behindness averse and compare their wage to the CEO’s pay. Using German establishment-level wage data, we indeed show that employee wages are increasing in CEO compensation. We establish causality by using a difference-in-difference approach and controlling for firm and establishment fixed effects. When CEO compensation increases by 1%, the median employee’s wage increases by about 0.04%. Our findings suggest that behindness aversion of employees is an important driver of wages and significantly increases the costs of executive compensation.

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Erasmus School of Economics

Dittmann, I., Schneider, C., & Zhu, Y. (2018). The Real Cost of CEO Compensation: The Effect of Behindness Aversion of Employees. Retrieved from