The Influence of Executive Compensation on Employee Behaviors Through Precipitating

Events
Author(s): Concha R. Neeley and Nancy G. Boyd
Source: Journal of Managerial Issues , Winter 2010, Vol. 22, No. 4 (Winter 2010), pp.
546-559
Published by: Pittsburg State University

Stable URL: http://www.jstor.com/stable/25822530

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JOURNAL OF MANAGERIAL ISSUES
Vol. XXII Number 4 Winter 2010: 546-559

The Influence of Executive Compensation on

Employee Behaviors Through
Precipitating Events

Concha R. Neeley
Assistant Professor - Marketing and Hospitality Serv. Admin.
Central Michigan University

Nancy G. Boyd
Associate Professor - Department of Management
University of North Texas

Amidst the multitude of stories in the popular and trade press recounting the greed
of CEOs and top executives, as well as the academic papers discussing the link of pay to
performance and other methods for determining CEO pay, authors sparsely mention
the influence of CEO pay on workers' morale and behaviors. From 1991 to 2001, rank
and-file wages increased by 36 percent, while pay for CEOs jumped 340 percent (Byrne,
2002; Welch, 2003). While collectively CEO compensation declined 15% in 2007 and
11% in 2008; in 2008, the top 500 executives earned an average of $11.4 million. In
2006, CEOs earned 364 times the pay of the average U.S. worker, down from 411 times
in 2005 (Sahadi, 2007). More recently, the former Merrill Lynch chief received $233
million; Countrywide Financial chief received $272 million, including $169 million in
stock, even as these companies faced failure. Furthermore, Richard Wagoner of General
Motors (GM) received $39 million although the value of GM stock declined 98% during
his tenure (Lambert, 2009). According to the Wall Street Journal, many corporate CEOs
profited handsomely in 2008, even though their companies and their shareholders
fared poorly. For example, Warner Music Group Corporation CEO, Edgar Bronfman
Jr., received a $3 million bonus although the company lost $56 million and the value
of its stock fell 25% (Dvorak, 2009). Recent limits on executive compensation for firms
receiving federal assistance further illustrate concern regarding this issue.
Many empirical studies consider how CEO compensation influences shareholder
wealth. According to the classical view, "there is one and only one social responsibility
of business - to use its resources and engage in activities designed to increase its profits
so long as it stays within the rules of the game, which is to say, engages in open and free

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(546)

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 Neeley and Boyd 547

competition without deception or fraud" (Friedman, 1962: 81). While this view may be
appropriate for short term profit, studies show positive relationships between corporate
social responsibility and financial performance (Beurden and Gossling, 2008; Cochran
and Wood, 1984; Shen and Chang, 2009). Corporate social responsibility advocates
the interests of all stakeholders, including employees, consumers, the community, and
the environment (Shen and Chang, 2009). The adherence to the classical view tends
to overlook the importance of employees as stakeholders in the firm. Employees are
often seen as dispensable and replaceable. In recent years, however, an emphasis has
been placed on valuing human resources as a core competence that could lead to a
source of sustained competitive advantage (Becker and Gerhart, 1996; Lado and Wilson,
1994; Wright et ai, 2001). Because human resources are a valuable component of an
organization, it is important to understand issues that may influence employee attitudes,
such as morale and justice perceptions, as well as behaviors, such as organizational
citizenship behavior and counterproductive workplace behaviors.
The purpose of this paper is to present a conceptual model depicting the influence
of justice perceptions related to executive compensation on employees' workplace
behaviors. It is proposed that precipitating events, as illustrated by recent corporate
scandals, call attention to the excessive nature of executive compensation, resulting in
injustice perceptions that influence the on-the-job attitudes and behaviors of employees.
The paper includes a review of literature related to executive compensation as well as
the integration of relevant theories, such as equity theory and organizational justice.
Propositions are offered in order to guide future empirical research. Finally, directions
for future research are suggested.

CURRENT ISSUES RELATED TO EXECUTIVE COMPENSATION

The corporate scandals of the past two decades have led to harsh criticism of
executive compensation. There is a longstanding debate and a great deal of research on
the appropriate method for compensating executives. Currently, most organizations tie
executive compensation to the profitability of the organization. Often their base pay is
a relatively small portion of their overall compensation, with large amounts of their pay
tied to stock options and bonuses that should relate to organizational performance. Many
argue that the ability to reap huge rewards tempts executives to make the organization
look profitable at all costs.
Critical to the argument that the current levels of executive compensation are
justified is the notion that the level of pay and incentives provided to executives
contributes to firm performance, and subsequently increases shareholder wealth. The
most widely researched area in the executive compensation literature involves the link
between pay and performance (Barkema and Gomez-Mejia, 1998). Research addresses
the relationship between executive compensation and firm performance (Attaway, 2000;
Anderson et ai, 2000) in an attempt to justify exorbitant salaries at the top. The demand
for justification of top executives' compensation by linking pay and performance is not a
new phenomenon. Murthy and Salter (1975) address the fluctuation of executive pay with
little correlation to profits or other performance metrics. The findings are inconsistent
with regard to the link between CEO rewards and stockholder equity; however, most
studies show a weak relationship at best (Attaway, 2000; Murthy and Salter, 1975).

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 548 Executive Compensation of Employee Behaviors

THE INFLUENCE OF PRECIPITATING EVENTS ON EMPLOYEE REFERENT

SELECTION AND ORGANIZATIONAL JUSTICE PERCEPTIONS
With increased scrutiny of executive compensation by the media due to the current
economic crisis in the United States, employees have more information about executive
compensation than in the past. In addition to the media, groups like United for a Fair
Economy (UFE) and Executive PayWatch (sponsored by the AFL-CIO) bring attention
to the growing gap between America's elite and the working class. In the past, American
employees were, for the most part, quite tolerant of the gap between their pay and the
pay of the corporate executives. There is possibly, however, a threshold where employees
question the justification of such excessive packages. Richard Scrushy (HealthSouth),
Dennis Koslowsky (Tyco), and Kenneth Lay (Enron) became household names as CEO
villains in the early 2000s. The media's coverage of top executives involved in scandal
established an air of distrust of those in power. Such coverage continues with the most
recent scandals brought on by the collapse and bailout of the financial industry. As noted
by Binder (2009), "go for broke" incentives are dysfunctional, encouraging executives to
take excessive risk with other people's money. The public now questions whether the rise
to power of these executives was fueled by hard work and diligence or by illegal and/or
unethical dealings.
Even Friedman (1962, 1970) makes it clear that the purpose of the firm is to
maximize shareholder wealth "without deception or fraud." It is this deception and
fraud that leads to feelings of trust violations. Bies and Tripp (1996: 248) suggest trust
violations or "unmet expectations concerning another's behavior, or when that person
does not act consistent with one's values," result in a damaged sense of civic order. Actions
violating trust between employees and top executives of the organization may result
in a range of counterproductive behaviors. During times of uncertainty, sense-making
behavior becomes a way of predicting the future to gain a sense of control. Therefore,
anticipatory justice judgments "will become increasingly important as organizations
struggle to adapt to today's turbulent business environment" (Shaw, 1997: 5). When
employees anticipate injustice, they expect unfairness, including unfair outcomes
or decisions (distributive injustice), unfair decision-making procedures (procedural
injustice), and/or unfair interpersonal treatment (interactional injustice) (Shapiro and
Kirkman, 2001). Anticipatory injustice likely results in numerous negative consequences,
including counterproductive workplace behaviors and self-defeating behaviors that
erode organizational beliefs and cultures. Shapiro and ICirkman (2001) suggest that both
justice theories and management practices consider conditions that are likely to give
rise not only to the perception of injustice, but also to worries about the possibility of
continued future injustice.
The model proposed in Figure I illustrates the relationship between perceptions
of injustice related to executive compensation and employees' attitudes and behaviors.
According to the model, precipitating events lead to the selection of an executive as
a referent through availability of information regarding executive pay and relevance
of the referent to the employee. In the model, a precipitating event is one that calls
attention to the inequity between executive and employee input and outcomes, and
this perceived inequity will subsequently influence employee perceptions of distributive
justice. Thus, it is suggested that employees will tolerate or even accept extremely high
levels of compensation received by their top executives until a precipitating event calls
attention to the issue. After all, if the company is doing well, jobs are usually more secure,
and employees may benefit through increased wages and the value of their stock if they

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 Neeley and Boyd 549

participate in a stock purchase plan. Further, the precipitating event is generally one in
which the organization suffers economic consequences that may require sacrifice on the
part of employees, such as layoffs and pay cuts. In the worst case scenario, employees
not only lose their jobs, but they lose their retirement savings as well, as illustrated by
the Enron collapse a decade ago.

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 550 Executive Compensation of Employee Behaviors

Selection of an Executive as Referent

A core assumption of equity theory (Adams, 1963, 1965) is the notion that individuals
assess their ratio of outcomes to inputs with regard to comparison or referent others.
Further, this referent is not necessarily a coworker, and the referent may even be a group
or the organization as a whole (Miles et ai, 1994). Two underlying dimensions influence
the choice of referent: (1) the availability of information and (2) the relevance of the
referent (Kulik and Ambrose, 1992).
According to the model in Figure I, a precipitating event is an antecedent factor
influencing the referent choice. The precipitating event allows for availability of
information, which may in turn influence the perceived relevance of the executive as a
referent. Organizations that pay their top executives excessively more than the industry
average are likely to be subjected to media and advocacy group scrutiny, particularly
when a corporate scandal brings attention to the issue. As Cosier and Dalton (1983)
note, events may trigger a comparison and the actions individuals take with regard to
inequity are influenced more by present than past events. Thus, a precipitating event with
media attention, like those mentioned above, is likely to result in increased information
available to employees regarding the inequity of executive compensation relative to their
own pay.
With regard to relevance, referents are often chosen based on their similarity to
the individual. Social comparison theory proposes that people will prefer to compare
themselves to similar others (Festinger, 1951). Dissimilar referents, however, may be
preferred "when the comparer (a) perceives those referents as at least minimally relevant
and (b) has access to information about those referents" (Kulik and Ambrose, 1992: 219).
Sweeney and McFarlin (2005) find that similar others not only provide employees with
information that subsequently influences their own pay satisfaction, but they also use
information obtained from dissimilar others. Thus, the availability of information may
influence whether or not a referent is considered relevant. Further, O'Neill and Mone
(2005) propose that psychological climate, defined as the way employees perceive and
interpret the organizational environment, may influence the selection of a referent. Thus,
a precipitating event may call attention to issues that influence employee perceptions of
the organizational climate.
Kulik and Ambrose (1992) note that particular "referent others" may increase in
relevance because they dominate the individual's perceptual field (i.e., through media
attention), and thus the amount of information readily available regarding the referent
choice increases. This attention to the gap in earnings, in addition to the media hype
surrounding the event (such as a scandal involving the executive), may influence
referent selection and lead employees to that threshold where feelings of inequity and
distributive injustice influence attitudes and behavior. Thus, conditions may exist in
which employees expand their perceptual field to include dissimilar referents for the
purposes of comparison.
Based on these arguments, the following is proposed:

Proposition #1:A precipitating event that calls attention to executive pay (increasing
availability of information and relevance of referent) will lead employees to select
the executive as a referent other for the purpose of evaluating pay fairness in terms
of distributive justice.

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 Neeley and Boyd 551

The Role of Distributive Justice on Outcomes

Once the executive becomes relevant for assessing compensation fairness, the
employee will use this information for evaluating the distributive justice of compensation.
Organizational justice has emerged as a dominant construct for explaining a number of
attitudes and behaviors in the workplace (Gilliland and Chan, 2001; Organ et al, 2006),
and perceived injustice is viewed as a motivator for social protest (Kelloway et al, 2010).
The organizational justice constructs are grounded in equity theory (Adams, 1963,
1965) and include distributive (fairness of outcomes) justice and procedural (fairness of
processes) justice.
Distributive justice refers to "the fairness of a distribution relative to the distribution
allocated to a comparison other" (Gilliland and Chan, 2001: 145). While most research
considers the comparison others to be peers, it is possible that the "referent others"
considered in judging distributive justice are supervisors or top management. In fact,
individuals may use multiple referents for comparison purposes depending on the
outcome of interest, and referents may also change over time (O'Neill and Mone, 2005).
Thus, employees may consider outcomes (pay) relative to inputs and compare their own
outcomes with management outcomes under certain circumstances. While employees
expect a gap in inputs to outcomes relative to top management, they may be less tolerant
of this discrepancy when management's inputs are viewed as unethical or inadequate
relative to the level of compensation they receive. If there is a disproportionate gap
between the employees' perceptions of their own ratio of inputs and outcomes compared
to that of top management, it is likely that they will experience inequity and injustice
perceptions with regard to distribution of outcomes.
According to relative deprivation theorists, two types of deprivation exist: egoistic
and fraternal. Egoistic deprivation occurs when the referent is similar to the individual,
while fraternal deprivation occurs as a result of an individual comparing his/her cultural
group to another. While egoistic deprivation leads to individual dissatisfaction, fraternal
deprivation may lead to more severe reactions as the individual feels a "shared sense
of injustice with others like himself" (Kulik and Ambrose, 1992: 213). Executives may
be perceived as "role models" to the entire organization, and thus employees impose
a higher standard of behavior on these individuals with regard to "earning what they
are worth." Thus, in the case of executive compensation, individuals will share fraternal
deprivation perceptions with other rank and file employees, leading to potentially
serious implications for the organization as a whole.
Fairness theory suggests that "individuals engage in counterfactual thinking to
determine the fairness of a particular event and whether authorities should be blamed
for that event" (Colquitt et al, 2006: 113). Individuals will react to an event by assessing
the extent to which their own welfare is reduced or threatened, and blame is placed
if they believe an ethical principal of social conduct is violated (Colquitt et al, 2006;
Folger and Cropanzano, 2001). Furthermore, the thought process suggested by fairness
theory is triggered by discrete events and is best suited for explaining counterproductive
reactions (Colquitt et al, 2006). Thus, precipitating events will increase the information
available to subordinates regarding top management. This information will be used in
forming fairness judgments that subordinates use in subsequent decisions regarding
attitudes and behaviors. Gilliland and Chan discuss the distinction between justice and
injustice, suggesting, based on image theory, "that injustice would have a greater impact
on subsequent actions than instances of justice" (2001: 146). They also propose "injustice

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 552 Executive Compensation of Employee Behaviors

is the strongest driver of decisions to retaliate or withhold efforts" (Gilliland and Chan,
2001: 147).
Substantial evidence suggests that there is a relationship between justice perceptions
and both positive and negative voluntary behavior within organizations (Gilliland and
Chan, 2001; Greenberg, 1990; Moorman, 1991). Kickul (2001) finds that when employees
perceive that their organization failed to fulfill promises and behaved improperly in terms
of procedural and interpersonal treatment, they are more likely to engage in deviant
work behaviors. Such counterproductive behaviors are considered to conflict with the
organization's legitimate interests and may harm both the organization and its members
(Bowling and Gruys, 2010; Jones, 2008; Sackett, 2002). Examples of such behaviors
include decreases in performance, failure to comply with organizational rules, stealing
from the employer, taking excessively long breaks or loafing, frequent absenteeism, and
interfering with the work of others, to name a few (Kickul, 2001; Kelloway et al., 2010).
While Wade et al., (2006) find that inequity between CEO pay and the pay of lower
level managers may increase turnover among lower level managers, the likelihood of
turnover may be reduced by a poor economic climate. When employees lack the option
to withdraw from the organization, counterproductive workplace behaviors provide an
opportunity to restore justice.
An association between perceived organizational justice and counterproductive
work behaviors is consistently noted by researchers. Kelloway et al. (2010) point out that
when employees experience unfairness, they engage in behavioral attempts to restore
justice. They may alter the outcome itself or attempt to restore justice by altering the
amount of effort invested in the task at hand. If workers feel that top management is
making millions for doing very little, they may be more likely to alter task-related inputs
to maintain a balance in the exchange relationship. Workers will likely do what they need
to get by and keep their jobs, but it is unlikely they will exert extra effort in their jobs
when such effort would likely do little for them. In fact, under conditions associated with
a precipitating event, employees may actively engage in counterproductive or deviant
workplace behaviors (e.g., Aquino et al., 1999; Bennett and Robinson, 2000; Cortina and
Magley, 2003; Robinson and Bennett, 1995), such as theft, loafing, and other types of
behaviors that would bring the inequity into balance. Thus, the following proposition is
suggested:

Proposition #2: There is a negative relationship between distributive justice

perceptions and employee participation in negative or dysfunctional workplace
behavior. That is, if employees perceive a lack (i.e., low level) of distributive justice
in organizational rewards, they will be more likely to engage in counterproductive
workplace behaviors.

Likewise, because employees who perceive injustice through distributed outcomes

are not likely to exert extra effort for organizational purposes, it is unlikely that they will
participate in extra role activities such as organizational citizenship behavior (OCB).
A natural reaction to injustice is to reduce participation in cooperative behaviors in
order to avoid exploitation (Jones, 2008). OCB is defined as "individual behavior that is
discretionary, not directly or explicitly recognized by the formal reward system, and that
in the aggregate promotes the efficient and effective functioning of the organization"
(Organ et al., 2006: 3). OCB is a multidimensional construct consisting of helping
behavior, sportsmanship, organizational loyalty, organizational compliance, individual

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 Neeley and Boyd 553

initiative, civic virtue, and self-development (Podsakoff et al., 2000). If employees feel
as though they are the means to an end that makes the boss more money, thereby
increasing the economic gap, they are unlikely to commit extra discretionary effort to
reaching such ends. Research provides evidence to support the relationship between
organizational justice perceptions and OCB (Moorman, 1991; Scholl etaL, 1987). When
employees who have previously engaged in OCB believe that fairness no longer reigns
in the organization, they will be motivated to reduce their inputs. Organ et al. (2006)
point out that under such circumstances, employees must be very selective as to which
inputs are reduced. In a tight labor market, reducing core task performance is risky,
while reducing OCB is less risky to their continued employment. Thus, participation in
discretionary organizational behavior is likely to decrease.
The following proposition addresses this issue:

Proposition #3: There is a negative relationship between distributive justice

perceptions and employee participation in discretionary organizational citizenship
behaviors. That is, if employees perceive a lack of distributive justice in organizational
rewards, they will be less likely to engage in OCB.

The Role of Procedural Justice and Trust in Top Management

Procedural justice denotes the perception of fairness regarding the process by which
the outcomes are determined. Thus, it relates to an assessment of the degree to which
fair procedures are considered to be present and used in an organization (Lind and Tyler,
1988; Zellars et al., 2004). Further, an interactional component to procedural justice
suggests that whether the exchange partner provides accounts of his or her actions
influences employee work attitudes and behaviors (Bies, 1987; Brockner, 2002). While
employees may be aware of how much the CEO earns through information provided
by the media, it is likely that employees may lack information regarding the process
by which top management pay is determined as such information is buried inside the
annual proxy statement. And even that information may not be adequate to assess how
the executive pay is determined.
Lack of information about the process leading to the outcome of this referent
figure may lead to a perception of procedural injustice. Thus, if employees do not
feel that they receive appropriate explanations delivered honestly, they are likely
to develop injustice perceptions from this interactional perspective. In addition, the
perception of procedural injustice has been associated with escapist coping on the part
of employees (Zellars et al., 2004), and such behaviors may include those associated with
counterproductive workplace behaviors. However, communication regarding the process
by which compensation is determined, as well as justification for the amount and type
of compensation, will mitigate the feeling of inequity. For example, Greenberg (1990)
finds procedural justice to be a mitigating factor in the relationship between distributive
injustice and theft. Thus, if individuals understand and accept the justification for the
excessive gap in compensation, they will be less likely to engage in counterproductive
workplace behaviors.
A lack of procedural fairness may also influence the degree to which employees hold
an exchange partner responsible for outcomes. The resulting feelings of resentment
may lead to low levels of support for the decision-maker and the organization as a

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554 Executive Compensation of Employee Behaviors

whole (Brockner, 2002). Thus, if conditions surrounding the precipitating event lead
to unfavorable outcomes for employees, such as layoffs, furloughs, and pay cuts, then
employees will hold top management to blame. Brockner notes that "people will blame
their unfavorable outcomes on the other party's use of unfair procedures and, as a result,
will feel resentful toward the other party." (2002: 62) This type of reaction is likely to
occur when executives continue to receive pay increases and bonuses while employees
are receiving pay cuts and layoffs. Thus, procedural justice perceptions may influence
the relationship between distributive justice perceptions and both negative and positive
voluntary behavior as follows:

Proposition #4: Perceptions of procedural justice will moderate the relationship

between distributive justice perceptions and organizational citizenship behavior
and dysfunctional workplace behavior in such a way that increased perceptions of
procedural justice will mitigate the negative effects of perceived distributive injustice
on employee behaviors.

Finally, trust is defined as "the willingness of a party to be vulnerable to the actions

of another party based on the expectation that the other will perform a particular action
important to the trustor, irrespective of the ability to monitor and control that other
party" (Mayer et al., 1995: 712). Trust is an attitude held by one person (the trustor)
toward another (the trustee) that develops from "the trustor's perceptions, beliefs, and
attributions about the trustee, based upon his or observations of the trustee's behavior"
(Whitener et al., 1998: 513). For the most part, employees develop trust or a lack of
trust in top management from organizational communications and information in the
media. In addition, trust is developed through behavioral consistency and integrity and
a demonstration of concern on the part of the trustee (Whitener et at., 1998). According
to the results of a survey, only approximately one half of employees responded that they
trusted senior management in their organizations (Watson Wyatt Worldwide, 2000). Trust
in organizational authorities is a factor that influences a variety of employee attitudes and
behaviors, such as organizational commitment and organizational citizenship behaviors
(Brockner et al, 1997; Kickul et al, 2005; Konovsky and Pugh, 1994). As noted by Kickul
et al. (2005), the actions of leaders are observed by followers, and inferences are made
based on these observations regarding the character of leaders. These inferences, in turn,
influence the level of character-based trust designated to leaders by their followers.
The perceived fairness of actions taken by leaders is often influenced by trust. Dirks
and Ferrin (2002) find a significant relationship between trust in leadership and both
procedural and distributive justice perceptions. De Cremer and Tyler (2007) note that
cooperative working relationships are fostered by both trust in authorities and procedural
fairness. Similarly, Brockner (2002) suggests that the nature of exchange relationships
is determined by procedural fairness information. Furthermore, information regarding
procedural fairness is used to make inferences about how much to trust others, such that
perceived fairness leads to greater trust (Brockner, 2002). Thus, it is suggested that:

Proposition #5: Trust in top management will moderate the relationship between
distributive justice perceptions and organizational citizenship behavior and
dysfunctional workplace behavior in such a way that increased levels of trust on the
part of employees will mitigate the negative effects of perceived distributive injustice
on employee behaviors.

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 Neeley and Boyd 555

CONCLUSION AND IMPLICATIONS FOR FUTURE RESEARCH

The purpose of this paper is to consider the influence of perceived excessive

executive compensation on employee justice perceptions and subsequent employee
behaviors that may be tied to justice perceptions. It is suggested that employees are
aware of and, for the most part, tolerate the large gap that exists between CEO pay and
the pay of rank and file employees. Recent scandals and CEO indiscretions, however,
illustrate that employees have their limits. Thus, a precipitating event, such as a large
pay increase or bonus for a CEO when employees are facing layoffs, may call attention to
the gap and create injustice perceptions with regard to the distribution of organizational
rewards. As Brockner notes, "the more people see the other party as responsible or
accountable for unfavorable outcomes...the more likely they are to feel resentful toward
the other party" (2002: 62). When faced with layoffs or pay and benefit cuts, such a
reaction by employees may lead to counterproductive workplace behaviors that may be
detrimental to organizational effectiveness. Furthermore, O'Neill and Mone (2005) note
that as long-term employment is no longer an expectation, employees will likely seek
additional referent information from more sources in order to reduce uncertainty.
Future research should consider the relationship between perceived organizational
justice and injustice due to attitudes toward executive pay and their influence on specific
behaviors such as functional (e.g., OCB) and dysfunctional behaviors (e.g., theft and
loafing) suggested in this paper. Jones (2008) further proposes that dysfunctional
organizational behavior reflects a desire for revenge in response to perceived injustice.
As noted above, if the economy and unemployment rate allow for mobility, it is possible
that turnover could result. But under conditions of limited job mobility, employees may
seek to rectify the injustice in other ways such as cutting back on contributions, resulting
in such outcomes as increased absenteeism or even theft. The model also proposes that
distributive injustice perceptions may decrease employee participation in discretionary
organizational citizenship behaviors. Both negative outcomes, however, may be mitigated
by attention to procedural justice considerations and trust in top management. Thus,
the picture is not as bleak as it may sound if top management is sensitive to the needs
of employees through effective communication of information related to how executive
pay is determined. Care should be taken in how such pay is justified given the current
condition of the organization. While management must be sensitive to the need for
effective communication, they must not make promises that cannot be kept in the
future.
Although not directly addressed in the model, the impact of CEO pay on union/
management relations is another possible topic to be explored through future research.
As noted above, the poor handling of plans to offer large retention bonuses to executives
by American Airlines when its employees were asked to make enormous wage concessions
in 2003 illustrates the power of unions in influencing the attitudes and behaviors of
their members (Daniel, 2003). In addition, research may examine such factors as group
or team influence on injustice perceptions in light of a precipitating event. Along this
line, Ambrose and Kulik (1988) find that work group membership influenced both
equity perceptions and referent choice for security comparisons. Research may address,
for example, whether dissatisfaction is contagious as it spreads through work groups
and units, and whether group effects are more influential than individual effects in
developing a sense of injustice after a precipitating event.
A limitation to such research, however, is the difficulty in conducting empirical

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 556 Executive Compensation of Employee Behaviors

research that depends upon a precipitating event to call attention to executive pay.
It may be impossible to anticipate such an event so that data may be collected both
prior to and after the event occurs. One option would include the use of longitudinal
archival data on employee fairness perceptions of publicly traded organizations. A
review of precipitating events in the popular press would allow for researchers to discern
differences in perceptions before and after the event. In addition, organizations may be
compared to those in which no such precipitating event occurred. For example, Byrne
and Miller (2009) use a sample of managers from a variety of U.S. organizations who
participated in leadership development through a global management consulting firm.
Such a sample may provide a good source of data related to the study of this topic.1
Cosier and Dalton (1983) also suggest the application of a longitudinal experimental
design to the study of equity theory that permits treatments to groups that take into
account the passage of time.
Exorbitant compensation continues to be the topic of many articles in both
academic and practitioner periodicals. Wilhelm (1993), in an essay concerning the
ethics of excessive executive compensation, suggests that when CEO salaries bear little
relationship to company performance, employee morale, loyalty, and productivity suffer.
According to Harris (2009), critiques of executive compensation should, in fact, focus
on issues related to fairness and effectiveness concerns rather than sensationalizing the
size of their pay packages. Downsizing and an ever increasing gap between executive pay
and the pay of rank and file employees may contribute to decreased commitment and
lower motivation and performance due to injustice perceptions. While numerous studies
exist regarding aspects of executive compensation, little research examines the influence
of top management pay on the attitudes and behaviors of rank and file employees.
It is possible that employees may incorporate moral convictions into their responses
to excessive executive compensation. While the problems associated with executive pay
seem evident, the full impact of these problems is not known. It is important to pursue
this line of research to determine what problems exist as a result of excessive executive
compensation and how one can alleviate the inequity and reduce the gap between top
management and the workforce.

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We wish to express our thanks to an anonymous reviewer for this suggestion regarding the empiri
cal examination of the proposed model.

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