Does CEO (over)compensation influence corporate reputation?

This paper investigates the impact of CEO excess compensation on corporate reputation. Past research has focused mainly on understanding how CEO overpayment is related to firm performance. As a consequence, we know relatively little about the implications of paying excess compensation for other important firm outcomes such as corporate reputation. By analyzing a sample of S&P 100 firms over the period 1995–2010, we show that overpayment in total compensation has a weak positive effect on a firm’s reputation while overpayment in stock options has a significant and negative impact on corporate reputation. Moreover, we find that the negative impact of CEO excess compensation in stock options is augmented if there has been a CEO change during the previous year, whereas this effect is lessened by CEO tenure. These results demonstrate that the relationship between excessive CEO compensation and corporate reputation is complex. It is influenced by the type of compensation and by specific CEO characteristics that invite greater public attention and scrutiny.