At what Price? A Meta-analysis of experiments assessing the impact of leader pay on employees and stakeholders

Over the last five decades, leader compensation has risen substantially, with the median CEO:worker pay ratio skyrocketing from 20:1 to around 268:1. This has raised concerns for both internal and external stakeholders. However, observational studies have difficulty isolating the causal impact of leader pay on employees and other stakeholders due to endogeneity issues. To address this, the present research synthesized findings from 23 experimental studies (11 third-person evaluative tasks, 7 first-person hypothetical scenarios, 5 immersive experiments) to examine how information about leader pay causally influences employee and stakeholder responses. Results indicate that higher leader pay has a significant negative effect on employee outcomes ( g = −0.53, 95%CIs [−0.68, −0.38], k studies = 12, n effect sizes = 83) as well as on external stakeholder outcomes ( g = −0.38, 95%CIs [−0.51, −0.26], k studies = 11, n effect sizes = 57). These negative effects did not depend on whether pay is presented in absolute terms or relative to employee pay. Counterintuitively, providing justification for high pay was ineffective in eliciting more positive responses. Dose-response analysis indicated that detrimental responses appear even at low pay ratios with no evidence of an incrementally compounding penalty. These findings highlight the need to do a better job of balancing the interests and demands of leaders with those of the broad range of stakeholders that they are notionally striving to lead.