AAA Study: Firm value, performance not affected by CEO pay

A new American Accounting Association (AAA) study – Do High CEO Pay Ratios Destroy Firm Value? – makes the case that market competition drives higher CEO pay. This study by Dean of the SMU School of Accountancy and Lee Kong Chian Chair Professor of Accounting Cheng Qiang together with Tharindra Ranasinghe of the University of Maryland, and Sha Zhao of Oakland University was presented at the AAA’s annual meeting in August. The study authors analysed pay at 817 firms whose CEOs had a mean total annual compensation of about $7.8 million and workers’ mean pay of about $74,000. “These findings provide useful insights to policy makers and the public who are keen to understand the reasons behind high CEO pay ratios,” the study states. “We also note that our study focuses on economic aspects of pay disparity between senior executives and average workers and does not allude to broader social norms such as fairness and social equity. These unresolved issues leave room for fruitful future research.”