1. 10/21/2015 How Much is Too Much? A Theoretical Analysis of Executive Compensation from the Standpoint of Distributive Justice Jared Harris February 19, 2005 Markkula Conference, Santa Clara University

2. 10/21/2015 How Much is Too Much?  Are CEOs overpaid? Underpaid?  1990 ratio of CEO to a typical worker, 100:1  2000 ratio 350:1 to 570:1  Kettering Foundation Survey … May be commonly held that high CEO pay is objectionable based on greed.

3. 10/21/2015 How Much is Too Much? “The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.” - John Kenneth Galbraith

4. 10/21/2015 Distributive Justice Theory 1. John Rawls: Justice as Fairness 2. Amartya Sen Martha Nussbaum: Capabilities and Freedom 3. Robert Nozick: Libertarian Framework

5. 10/21/2015 Distributive Justice and CEO Pay  Theoretical convergence around process Closely related processes of:  Executive employment/selection  Executive compensation setting  Value Proposition  Matching “worth” with appropriate pay

6. 10/21/2015 Rawls and CEO Pay  Key part of Rawls’ second principle of justice: “open position” (fair equality of opportunity)  Opportunities must be open  Exec pay-setting processes: justly determined?  If not, likely an indication that selection processes are also unjust or “gamed”

7. 10/21/2015 Rawls and CEO Pay

8. 10/21/2015 Capabilities Theory and CEO Pay  Key capability: “the right to seek employment on an equal basis with others”  Opportunities must be open  Again, if an unjust process in setting executive pay indicates exclusivity in the selection process...  Then high pay is difficult or impossible to justify

9. 10/21/2015 Libertarian View of CEO Pay  Two key assumptions for Nozick’s theory: “justice in acquisition” and “justice in transfer”  Assumptions must be met if distributions of wealth or property are to be justified  Otherwise, transfer not defensible

10. 10/21/2015 Value Proposition of CEO  CEOs should be paid according to their value proposition for the firm and its stakeholders  Difficult to explicitly determine  Market solves?

11. 10/21/2015 Distributive Justice and CEO Pay  To what extend does this theoretical analysis tell us anything useful?  Evidence reinforces validity of theoretical concern  Influence our research agenda

12. 10/21/2015 Fairness and CEO Pay What raises CEO pay?  CEO celebrity/notoriety (Hayward, Rindova, & Pollock, 2004; Porac, Wade, & Pollock, 1999)  ‘Bandwagoning’ popular management techniques (Staw & Epstein, 2000)  Luck (Bertrand & Mullainathan 2001)  Friends on compensation committee (Young & Buchholtz 2002; Conyon & Peck, 1998)  Non “rubber-stampers” sanctioned (Westphal & Khanna 2003)