CEOs Who Think They’re Underpaid More Likely to Order Layoffs

If your boss thinks he or she is underpaid, it may be time to worry.

A new study, led by researchers at the Rutgers School of Management and Labor Relations, finds that CEOs who are paid less than their peers are significantly more likely to order layoffs.

Among firms that engaged in layoffs during the study period, the average CEO eliminated 1,200 jobs and received $600,000 in additional compensation the next year, the study found.

“Given the perception that layoffs can increase firm performance, we argue that CEOs paid below their peers are likely to use layoffs as a means for increasing their own pay,” Scott Bentley, who led the study as a Ph.D. student at Rutgers and now serves as an assistant professor at Binghamton University, said in a news release.

“Research suggests CEOs view compensation as a symbol of prestige and status. Even with a seven or eight-figure salary, they might feel slighted if they are earning less than executives at other firms,” Bentley said.

The researchers analyzed data on 140 S&P 500 firms for the years 1992 to 2014, focusing on the consumer staples, financial services, and information-technology industries. The sample was adjusted for a variety of variable to ensure accurate comparisons.

The study, which is available online, will appear in an upcoming edition of the academic journal Personnel Psychology.