Business

Will the Recession Cause Future CEOs to Seek Lower Pay?

CEO pay could be lower for executives who enter the workforce during a recession.
CEO pay could be lower for executives who enter the workforce during a recession.EPA/DAREK DELMANOWICZ POLAND OUT

In an era of rising executive pay, you’re probably justified in scoffing at the notion that CEO pay could lower for any reason.

But a study out of Emory University finds that it could happen eventually, with a tip of the hat to the recession.

Researcher Emily Bianchi examined executive pay in 2007. Looking at more than 2,000 publicly-traded organizations, she compared CEOs’ total compensation to whomever received the second-highest haul at their respective companies. She also made note of each CEO’s age, so she could more or less gauge the year they entered the workforce.

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The finding? Quoting from the Association for Psychological Science’s Minds for Business blog, which highlighted the study:

On average, CEOs received more than twice the total compensation of the next-best-compensated individuals in their organizations. This gap was narrower, however, in companies headed by people who entered adulthood during economic downturns. CEOs who came of age in the worst economic times received 1.69 times as much as their best-paid subordinates while CEOs who came of age in the best economies paid themselves 2.26 times as much.

The result suggests that leaders who come of age during bad economic times—like the last few years—tend to pay themselves less once they reach the head of the C-suite. The theory is that those who enter the economy during the good times expect them to stay that way, and those who enter during the bad might have a less rosy idea of what good even means.

With the economy still not looking wondrous more than five years removed from the financial crisis, the window’s been open for a good long while to create, in theory, a generation of more humble leaders.

Now, you can temper that notion pretty easily. Even those “humble” leaders still collected more than 1.5 times their organizational runner-up. That’s hardly to mention how they compare to the rank-and-file. So don’t worry—tomorrow’s big-company execs will probably get by.

Beyond that, the Great Recession wasn’t your every-few-years sort of downturn. After living through a really bad downturn, who knows? Maybe a CEO would be tempted to say screw it and squeeze as much cash out as possible to make up for those tough early years.

However, Bianchi’s study saw similar results even when factoring in age, the Minds for Business article notes. That means the finding presumably held true for leaders who entered adulthood in the early 1980s, which marked a recession that whopped the nation pretty hard itself. (The study also accounted for factors like gender, industry, and revenues.)

Also of note: CEOs, especially of big companies, generally don’t have total control over their own compensation. They do have the power to ask for more, of course, and might have some say in how their pay is decided.

Those caveats aside, with executive pay thought to be at an all-time high, it’s probably fair to say you’ll believe it will go down when you see it.

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