Distributive Justice and CEO Compensation

This paper develops a framework for studying individuals’ ideas about what constitutes just compensation for chief executive officers (CEOs) and reports estimates of just CEO pay and the principles guiding ideas of justice. The sample consists of students pursuing a Master of Business Administration (MBA) degree in Sweden and the United States. The framework, based on justice theory and making use of Rossi’s factorial survey method, enables assessment of ideas of fairness in CEO compensation, including (1) the just CEO compensation, in the eyes of each observer; (2) the principles of microjustice – observers’ ideas about “who should get what” based on characteristics of CEOs and their firms; and (3) principles of macrojustice – ideas about the just level and dispersion in compensation across all CEOs. Our estimates yield the following main results: First, there is broad agreement on the median just CEO compensation but substantial inter-individual variation in the principles of microjustice and the other principles of macrojustice. Second, there is remarkable similarity in the distributions of the principles of microjustice and macrojustice across the MBA groups. Other important results include a pervasive gender attentiveness among MBA students and tolerance for large variability in CEO pay.justice theory, fairness, CEO compensation, factorial survey method, MBA students, gender, inequality, Gini coefficient, Atikinson measure, Theil's inequality measures

Are Female Workers Less Productive Than Male Workers?

This paper addresses whether there are productivity differences between men and women among blue-collar workers. We compare the wages under piece- and time-rate contracts of men and women working in the same occupation in the same establishment in three countries: the U.S., Norway, and Sweden. The findings are summarized in four points. First, the gender wage gap is smaller under piece- than under time-rate work. According to the interpretation put forth here, two thirds of the gap at the occupation–establishment level is due to productivity differences, while one third is not “accounted for”, but could be due to discrimination or experience or other factors. Productivity differences between sexes in typically male-dominated blue-collar industries are however very small, of 1– 3%: Sweden 1%, U.S. 2% and Norway 3%. Second, in age groups where women on average have extensive family obligations, the wage gap is larger than in other age groups. Third, under time-rate work, the wage gap is more or less independent of supposed occupation-based productivity differences between men and women, while under piece-rate work, the wage gap mirrors quite closely assumed productivity differences, with women receiving a wage premium in female-advantageous settings and a penalty in male-advantageous settings. Fourth, in contrast to Sweden, in Norway and the U.S. women sort more often into piece-rate work than men.

Distributive justice and CEO compensation

This paper develops a framework for studying individuals' ideas about what constitutes just compensation for chief executive officers (CEOs) and reports estimates of just CEO pay and the principles guiding ideas of justice. The sample consists of students pursuing a Master of Business Administration (MBA) degree in Sweden and the United States. The framework, based on justice theory and making use of Rossi's factorial survey method, enables assessment of ideas of fairness in CEO compensation, including (1) the just CEO compensation, in the eyes of each observer; (2) the principles of microjustice observers' ideas about who should get what based on characteristics of CEOs and their firms; and (3) principles of macrojustice ideas about the just level and dispersion in compensation across all CEOs. Our estimates yield the following main results: First, there is broad agreement on the median just CEO compensation but substantial inter-individual variation in the principles of microjustice and the other principles of macrojustice. Second, there is remarkable similarity in the distributions of the principles of microjustice and macrojustice across the MBA groups. Other important results include a pervasive gender attentiveness among MBA students and tolerance for large variability in CEO pay

Pay, risk, and productivity: The case of Finland, 1980 - 1996

In this paper we report on four topics. (1) To what extent are piece-rate systems used among manufacturing workers in Finland? (2) What is the effect on the average pay level of using piece- versus time-rate systems? (3) How much wage risk is associated with a piecerate system? (4) How much of the pay differential between piece- and time-rate workers is compensation for extra effort and how much is compensation for bearing additional risk? How do the studied years 1980, 1990, and 1996 differ with respect to the four questions? We have access to unique individual-level data on payment system (piece- versus time-rate) and occupation from several thousand establishments and more than a quarter of a million individuals engaged in the private sector in Finland. The central findings are that a majority of the studied employees work on time rate only and that there has been a shift from mixed piece-rate schemes to only piece-rate schemes between 1980, 1990 and 1996. Second, there is a substantial extra payoff from working at a piece-rate scheme. Third, piece-rate jobs entail a risk of loss: A nonnegligible percentage of the piece-rate workers earn less than the time-rate workers at the same occupation–establishment level. Fourth, there is evidence of risk compensation: The higher the variance of pay at the occupation–establishment level, the higher the average pay at that level is. Finally, most of the pay differential between time- and piece-rate workers is compensation for extra effort and a smaller part consists of compensation for risk, which confirms that there are strong productivity gains from the use of piece rate.Käsittelemme tässä raportissa neljää eri teemaa: (1) Missä määrin suorituspalkkausta käytetään Suomen tehdasteollisuudessa? (2) Miten suorituspalkkauksen käyttäminen vaikuttaa keskipalkkatasoon aikapalkkaukseen verrattuna? (3) Miten suuri palkkariski liittyy suorituspalkkaukseen? (4) Kuinka suuri osa suoritus- ja aikapalkkaustyöntekijöiden välisestä palkkaerosta on korvausta ylimääräisistä ponnisteluista, ja kuinka suuri osuus taas on korvausta ylimääräisestä riskinotosta? Miten tarkasteltavien vuosien, 1980, 1990 ja 1996, tilanne eroaa näiden neljän kysymyksen osalta? Meillä on pääsy ainutlaatuiseen palkkaustapaa (suoritus-tai aikapalkka) ja työtehtävää koskevaan yksilötason tilastoaineistoon. Kyseinen aineisto sisältää tiedot useista tuhansista yksityisen sektorin toimipaikoista Suomessa ja kattaa yli neljännesmiljoona työntekijää. Saadut tulokset osoittavat, että suurin osa tutkituista työntekijöistä työskentelee pelkästään aikapalkalla, ja että vuosien 1980 ja 1996 välillä on tapahtunut siirtymä yhdistetyistä suorituspalkkajärjestelmistä (suoritus- ja aikapalkkojen yhdistelmistä) puhtaisiin suorituspalkkoihin. Lisäksi suorituspalkan havaitaan tuottavan työntekijälle huomattavan ansiolisän. Edelleen havaitaan suorituspalkkaukseen liittyvän myös riski menettää rahaa: tietty, ei aivan vähäpätöinen, prosentti-osuus suorituspalkkalaisista ansaitsee vähemmän kuin vastaavalla työtehtävä-yritys -tasolla olevat aikapalkatut työntekijät. Tätä riskiä kompensoi kuitenkin havainto, että palkat ovat tietyllä työtehtävä-yritys -tasolla sitä korkeammat, mitä suurempi palkkojen vaihtelu on sillä tasolla. Lopuksi huomataan, että suurin osa suorituspalkkaus- ja aikapalkkaustyöntekijöiden välisestä ansioerosta pohjautuu kompensaatioon ylimääräisestä ponnistelusta, ja vain pieni osa perustuu korvaukseen riskinotosta. Siten suorituspalkkauksen käyttö selvästi kasvattaa tuottavuutta. – palkkajärjestelmä ; tuottavuus ; riski ; suorituspalkka ; aikapalkk