Cash Versus Cachet: Why CEOs of the Best Companies Get Paid Less

GettyImages-531930389-compressorIf given a choice between leading one of America’s most prestigious companies and one of the rest, you’d think the answer would be a no-brainer. But gracing the resume with a much-admired employer could come at a cost: of around $500,000.

A study by researchers at Germany’s Mannheim University, published Thursday in the Journal of Financial Economics, found that CEOs leading the cream of the crop earn an average 8% less than their peers.

The study was based on an analysis of Fortune’s annual America’s Most Admired Companies list and publicly-disclosed CEO pay data. Its final sample included 1,711 companies and 3,191 CEOs.

“CEOs leading the cream of the crop earn an average 8% less than their peers.

The researchers noted the results were backed up by other studies, such as a 2013 Australian paper that showed executive MBA students would agree to 7.5% lower pay to join the most prestigious companies.

So why are CEOs taking the pay hit? Could it be because they value their standing more than the size of their remuneration? Or are they just hoping their respected status will help them earn more money down the track?

The Mannheim researchers found the answer is more likely to do with a simple status boost, rather than any increased earnings potential. For example, they found that among companies in regions where people cared more about social status, such as Texas and California, there was a larger negative effect on CEO pay.

CEOs working for prestigious firms were indeed more likely to improve their earnings prospects, but they were also were more likely to lead, or sit on the boards, of other well-regarded companies. So any increase in salary wasn’t enough to fully make up for the difference of their earlier reduced pay.

“Executives focused on high financial rewards should probably avoid America’s most admired firms,” the study’s authors wrote in the Harvard Business Review. “Jobs at the helm of widely admired and well-governed firms are for those willing to make a financial sacrifice.”

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