Executive Greed and a Powerful Cause for More Pay: An Empirical Investigation into Human Wage Setting Behaviour and a Better Alternative to Minimum Wages

Abstract

There is widespread assumption that executives are greedy and that it is executive greed that has led to widespread spiralling executive pay. This paper offers an alternative explanation for today’s extraordinary high levels of executive pay: Pay transparency.

Pay transparency increases executive pay by as much as 23.0% compared to only 6.9% when wages are not transparent based on over 308 treatments in 7 behavioural experiments. We call this wage increase the Wage Anchor Effect. Men are 40% more affected by the Wage Anchor Effect than women.

While lower for lower paid jobs, the wage increasing Wage Anchor Effect exists even there (we used babysitters and cleaning staff as job examples). Therefore, pay transparency could help lower-paid workers with higher wages which may not have the negative side effects of minimum wages.

Keywords: minimum wage, executive compensation, remuneration, greed, anchor effect, priming effect, behavioural economics, experiments, empirical research

JEL Classification: G34, J33, M52, J33, G31, M12, M10