Will the Great Recession Spawn Humble CEOs?

For years, social scientists have been interested in narcissism among America’s corporate titans.  Narcissistic CEOs are known for their self-promotion, excessive self-regard, and tendency to draw attention to themselves. They also tend to embrace risk and lead companies that either perform fantastically well or catastrophically poorly.

One signal of a narcissistic CEO is relative pay. Narcissistic CEOs pay themselves considerably more than other members of their top management team.

CEOs have some control over their own pay and almost complete control over the pay of other executives. Choosing to pay oneself considerably more than the next most senior executive reflects a belief that one is uniquely valuable to the company and entitled to compensation that reflects this heightened importance.

Despite widespread interest in narcissism, relatively little is known about why some CEOs are narcissistic while others are relatively modest.

New findings suggest that formative experiences in early adulthood might help shape how important, special, and entitled CEOs ultimately become.

A study by Emory University professor Emily Bianchi showed that corporate kings who came of age in a bad economy paid themselves relatively less than the next highest paid executive compared to CEOs who entered adulthood in more prosperous times.

The research on executive pay was part of a larger study showing that entering adulthood in a recessions tempers narcissism later in life. As part of her research, Bianchi examined compensation data from 2,095 large publicly traded company based in the United States. Her analyses focused on executive pay in the year 2007, the last year before the Great Recession brought heightened attention to executive compensation.

Bianchi gauged narcissism using each CEO’s base salary, bonus, and total compensation package (including stock options and deferred income) relative to those of the next highest paid executive in the company. She also checked the age of each chief to calculate when they would have entered adulthood.

On average, CEOs received more than twice the total compensation of the next-best-compensated individuals in their organizations. This gap was narrower, however, in companies headed by people who entered adulthood during economic downturns. CEOs who came of age in the worst economic times received 1.69 times as much as their best-paid subordinates while CEOs who came of age in the best economies paid themselves 2.26 times as much.

The results held even after Bianchi accounted for CEO age, gender, company revenues, assets, and industry.

The findings could explain why people who enter the workforce in economic booms continue to gain financial advantages even decades into their careers, Bianchi says in reporting her findings in the journal Psychological Science.

“Given that people who enter adulthood in more prosperous times are more likely to feel entitled to good outcomes,” she writes, “they may be more likely to advocate for themselves in ways that could continue to yield greater financial and career success.”