Pay for beauty? A contingent perspective of CEO facial attractiveness on CEO compensation

Abstract

AbstractThe physical attractiveness stereotype maintains that what is beautiful is good. Does this also apply to Chief Executive Officers (CEOs) and influence their compensation? There are numerous debates on CEO compensation, and scholars have long been interested in understanding the factors that impact CEO compensation. Of the empirical studies investigating the antecedents of CEO compensation, little attention has been paid to CEO facial attractiveness. Drawing mainly from the physical attractiveness stereotype, we argue that CEO attractiveness increases CEO compensation, and the effect becomes stronger when the CEO has worked as a CEO in other firms, but weaker when the CEO is female or works for a high‐technology firm. We tested our hypotheses by coding facial attractiveness for all CEOs in S&P 500 firms over 10 years (861 CEOs and 4,395 firm‐year observations). Results partly support our predictions and show that the effect of CEO facial attractiveness on compensation is not only robust but also economically significant. Moderating effects were found using prior CEO experience and high tech industry as moderators. However, we found no moderating effect of CEO gender on the relationship between CEO facial attractiveness and compensation. This study suggests that CEO compensation is not an entirely rational process, and compensation committees appear to be biased in favor of beautiful individuals.