Dad Is in the News! Vulnerable Identities and the “Outrage Constraint” on CEO Pay

Abstract

Being the subject of press coverage is often a source of tremendous pride if journalists report one’s achievements, but a cause of utter embarrassment if they publicize one’s personal failures. Especially negative reports can have dramatic reverberations in the social environment of the exposed individual. We study such cases and the responses that they trigger in the context of negative press coverage of perceived CEO overcompensation. We introduce the concept of “vulnerable identities” defined as identities that are likely to become threatened by public criticism and argue that executives endowed with vulnerable identities should be more inclined to agree to pay cuts subsequent to negative press coverage in order to resolve the incoherence between the criticized and the expected behavior associated with these identities. Based on a large, hand- collected data set of comprehensive biographic data of U.S. CEOs matched to media reports on their pay, we tested and found evidence in favor of our theory on identities that cover extensive parts of an executive’s life, including work, the family, and civic engagement. Our paper formalizes, tests and demonstrates the limits of the well-known “outrage constraint” suggested in the managerial power literature.