Voting For A Left-Leaning Politician Can Reduce CEO Pay By Almost 6%, New Research Shows
Concerned about excessive CEO pay and grave income inequality across the corporate world? You might want to vote for a left-leaning politician.
New research conducted by academics at Durham University Business School in the UK, and Sabanci Business School in Turkey, shows that elections that bring left-leaning, pro-equality politicians to power lower the pay of chief executives in that place by an average of almost 6%. Conversely, when a left-leaning political leader leaves office and is replaced by a non-left-leaning political leader, CEO pay increases by almost 3%, on average.
“Wealth inequality has been widening and becoming an increasingly greater concern around the world – particularly when it comes to income inequality,” writes Dimitris Petmezas, professor of finance at Durham and one of the academics who led the research. “Though left and non-left-leaning governments have different approaches to tackling this, our research shows that left-leaning policies, in particular pro-equality sentiment, are more effective in reducing the inequality between employers and their CEOs, and tackling the widening inequalities in their respective countries,” he adds.
To conduct their research, Petmezas and his colleagues used the Database of Political Institutions (DPI), which provides a classification of all political parties around the world as well as information on their tenure in government. They then developed a model to identify ideological shifts from non-left to left, and vice versa, in governments in power between 2000 and 2017 across 23 countries.
For information on executive pay, they referenced data from over 10,000 companies, collated by Standard & Poor’s Capital IQ.
Based on the overarching findings, the academics concluded that the biggest change in CEO compensation under different political leadership was not in base-level pay, but in discretionary bonuses, which tend to be scrutinized much more heavily when a left-leaning government comes into power.
Executive pay has been a topic of fierce debate in recent years. Chief executives at S&P 500 companies made 324 times more than the median workers at their companies in 2021 on average, according to an annual report from the U.S.’ largest labor union federation AFL-CIO released in July last year. For that year, the CEO-to-worker pay ratio hit its highest level since the AFL-CIO started tracking the metric in 2018.
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