The Downside of Raising CEO Pay in Emerging Economies

In a transitional economy, the greater the pay disparity between a company’s top leaders and its workforce, the worse the firm’s productivity, on average, apparently because of the corrosive effects of employee resentment, says a team led by Michael Firth of Lingnan University in Hong Kong.

 The team’s study was conducted in China, where the ratio of top-management pay to workers’ average pay rose from 4.92 in 2001 to 5.73 in 2012 as the country has moved cautiously toward a free-market system.