High CEO pay is bad for business

23 Oct 2018
High paid CEOs might not be the best thing for business.

Bosses with exorbitant pay packets are seen as less effective leaders and less able to influence those they seek to lead, according to University of Queensland research.

UQ School of Psychology’s Dr Nik Steffens and colleagues studied the consequences of elevated pay of Chief Executive Officers (CEO).

“The consequences are all bad: people identify less strongly with a CEO who receives high pay and this reduces their perceived leadership ability and their charisma,” Dr Steffens said.

“It creates an ‘us versus them’ distinction which erodes the CEOs' ability to connect to, and consequently motivate and inspire, their workers.”

As debate continues to rage around Australia’s highest-paid CEOs, Dr Steffens said the results of the study call into question traditional organisational approaches which claim high pay incentivises leadership.

“While elevated pay is typically justified by a desire to reward and inspire good leadership, it appears that it in fact achieves the very opposite,” he said.

“Incentive and shareholder value models argue that increasing CEO pay ensures that CEOs will more effectively motivate their employees to work to achieve the organisation’s goals.

“However this analysis focuses only on the motivation of the leaders who receive high pay, not on its effects on the people that leaders are meant to be motivating.

“More recent approaches to leadership show that the ability to influence employees flows from the capacity to create and embed a sense of shared identity within the group that both leaders and followers belong to.

“Clearly it’s difficult for the average employee to have a shared identity with a CEO who earns 50 or 100 times their salary.

“Decisions about CEO remuneration need to balance the implications of this for the CEO against those for the rest of the organisation.”

The research, conducted in collaboration with Professor Alex HaslamDr Kim Peters and Professor John Quiggin, is published in The Leadership Quarterly.

Read the full media release on UQ News.