Is Business Broken? How Do Employees Feel about Executive Compensation?
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Mar 13, 2025 
In this conversation, Peter Fasolo, former CHRO at Johnson & Johnson, and Charlie Tharp, a professor at BU Questrom School of Business, delve into the complex landscape of executive compensation and its impact on employee morale. They discuss how pay structures influence workplace culture and motivation, the urgency for pay transparency, and its role in addressing gender disparities. The duo also highlights innovative models to enhance fairness and engagement, underscoring the pressing need to align executive pay with company performance and employee satisfaction.
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Tournament Theory on Motivation
- Tournament theory motivates employees by offering pay gaps linked to realistic promotion opportunities.
- Simply increasing CEO pay doesn't boost individual motivation; relevant, achievable goals do.
Pay Fairness Influences Motivation
- Large pay gaps reduce motivation when perceived as unfair, especially for those lower in the hierarchy.
- Transparency in pay determination builds trust and can support motivation even with pay gaps.
Impact of Executive Pay Discrepancies
- Employees often react negatively when executive pay rises sharply but they face layoffs or benefit cuts.
- Such discrepancies heighten feelings of unfair treatment and dissatisfaction.