Do CEOs thrive in times of inflation? An empirical study on the impact of inflation on CEO compensation in the United States

Sammanfattning: With CEO compensation and CEO-pay ratio growing to previously unobserved levels simultaneously as the United States has experienced inflation hikes, the discussion on the importance of understanding how CEO compensation develops increases for corporate governance to ensure shareholder value. This research paper aims to explore the impact of inflation on CEO compensation and whether inflation is the reason for the recent surge in CEO compensation. We use a multi-regression on panel data for CEO compensation of American firms between 1994 and 2022. The findings indicate a negative relationship between increases in the two-year lagged inflation and CEO compensation, also suggested by significant results for short-term and long-term compensation in parts of the subsets. Moreover, an amplifying effect is found when inflation is above the Federal Reserve's inflation target rate of 2%, with the negative impact of inflation deepening for certain periods while the positive impact grows for other periods. For CEOs who are new to their position during a period of higher inflation, a positive impact is found potentially indicating an improved bargaining power for their compensation package, which is larger for short-term compensation than the total compensation. These results deviate from the trend found for new CEOs irrespective of inflationary levels which found a decrease in their compensation. No significant results are found on differences in the influence of inflation between industries. To conclude, the negative impact of inflation on CEO compensation does not support recent speculations of inflation driving the growing CEO compensation and CEO-to-worker pay ratio increase. Nevertheless, CEOs are thriving in times of above-target inflation, with especially newly appointed CEOs receiving higher compensation.