The staggering disparity between CEO compensation and average worker pay in the United States has long attracted attention from economists, sociologists, and the general public alike. In the mid-1960s, the earnings ratio of CEOs to average employees was approximately 22 to 1, a figure that seemed considerable at the time. Fast forward to recent years, and that ratio has ballooned to an astonishing 344 to 1, illustrating a vast and growing gulf in income inequality within corporate structures. While myriad factors contribute to this phenomenon, new interdisciplinary research now highlights the intriguing role that personality traits—specifically Machiavellianism—play in executives’ compensation levels.
A newly published study authored by a team of researchers including Jason Ridge, a strategic management professor at the Sam M. Walton College of Business, provides a comprehensive empirical investigation into how certain dark personality traits among CEOs shape their executive pay packages. The research paper, titled “Chief Executive Officer (CEO) Machiavellianism and Executive Pay,” was released in the Journal of Applied Psychology and examines an underexplored facet of corporate governance: the intersection of leader psychology and compensation negotiation outcomes.
Unlike prior studies that predominantly focus on organizational structures, such as board configurations or compensation committees, this work delves into the psychological underpinnings behind executive pay. The authors posit that a CEO’s Machiavellian disposition—a personality marked by manipulativeness, emotional detachment, strategic self-interest, and an inclination to treat social interactions as zero-sum contests—correlates with markedly higher compensation figures. This perspective advances current executive compensation theories by integrating behavioral science insights into financial and organizational analyses.
Tracing the origins of Machiavellianism to Niccolò Machiavelli’s seminal 16th-century treatise The Prince, modern psychology has adapted the term to characterize individuals who wield manipulation and strategic cunning as core tools in interpersonal dynamics. Psychologists have operationalized Machiavellian traits as part of the so-called “dark triad,” alongside narcissism and psychopathy, emphasizing their non-pathological yet socially aversive nature. These traits facilitate competitive advantage in high-stakes environments but also raise questions about ethical leadership and corporate culture.
One notable challenge the researchers faced was introducing an accurate and scalable method to quantify executive Machiavellianism without directly surveying CEOs—many of whom are notoriously guarded and unavailable for in-depth psychological research. To circumvent this barrier, the team ingeniously utilized a novel observational approach, analyzing short clips of CEOs from public speeches and media interviews. Expert psychologists then coded these clips using a seven-point scale to assess Machiavellian tendencies, leveraging established psychological frameworks that affirm the validity of first impressions in evaluating personality traits within the dark triad.
The results revealed that the CEOs in the sample scored an average of 3.98 on the Machiavellian scale, exceeding the baseline population norm while not reaching pathological extremes. Notably, executives scoring above 3.5 were classified as exhibiting Machiavellian personalities. When parsed against compensation data, these high-Mach individuals earned an average of $1.64 million more annually than their less Machiavellian peers, whose mean salary hovered around $12.9 million. Such a differential signals a substantive link between psychological profile and financial reward mechanisms in executive compensation.
Beyond sheer salary figures, the study also explored the dynamics by which Machiavellian CEOs secure their elevated pay. Unlike rank-and-file employees, CEOs engage directly with boards of directors to negotiate their remuneration packages. According to Ridge, those with pronounced Machiavellian traits excel in these negotiations due to their intrinsic drive to ‘win’ social interactions and their adeptness in strategic bargaining. Consequently, these leaders realize lucrative deals even amidst subpar company performance, highlighting a decoupling of pay from traditional performance metrics.
Moreover, the investigation uncovered that Machiavellian CEOs tend to negotiate more lucrative severance packages, known colloquially as “golden parachutes.” These contracts ensure substantial financial benefits if executives are dismissed without cause, effectively cushioning the consequences of potential governance failures or strategic missteps. The security afforded by such arrangements epitomizes the negotiation leverage wielded by executives with high Machiavellian scores and the structural allowances boards make in response.
Interestingly, the influence of Machiavellian CEO personality appears to ripple outward within the company’s leadership echelon. The study found that these CEOs often negotiate higher salaries for other top executives, effectively raising the entire upper management’s compensation. This cascading effect can benefit the CEO as well, as executive pay tends to be internally benchmarked relative to peer salaries. Concurrently, increased compensation at the upper tiers aids in attracting, motivating, and retaining key talent, a strategic boon for corporate longevity and competitiveness.
The dual nature of Machiavellianism in leadership evokes an important nuance in the discourse on executive behavior. While manipulativeness and self-interest carry negative connotations and risks of unethical conduct, Ridge cautions against dismissing these traits outright. Machiavellian skills may confer negotiation advantages with suppliers, customers, and various stakeholders, ultimately generating tangible benefits for the company. The challenge for governance frameworks lies in harnessing these positive outcomes while limiting potential abuses or moral hazards inherent in Machiavellian conduct.
This research invites a reevaluation of conventional wisdom surrounding CEO pay by integrating personality psychology into compensation studies. It underscores the need for multidimensional approaches in understanding executive behavior, one that transcends simple organizational charts and financial outcomes to consider the complex interplay of human traits and corporate success. As discussions on income inequality and ethical leadership intensify globally, insights such as these provide vital context for policy development and executive assessment protocols.
The implications are far-reaching, suggesting that boards and compensation committees might benefit from incorporating psychological assessments into their executive evaluation and negotiation processes. Whether through enhanced governance oversight or structured negotiation training, recognizing the psychological profiles of CEOs could imbue decision-making with a more holistic, predictive framework. Conversely, it raises important ethical questions about privacy, profiling, and the fairness of using personality metrics in compensation determinations.
In sum, the study released by Ridge and colleagues offers a pioneering lens through which to view executive pay as not merely a function of market dynamics but as intricately tied to the psychological fabric of leadership. It challenges stakeholders to rethink how corporate boards balance compensation strategies with personality-driven negotiation tactics and how organizations can optimize leadership selection without sacrificing ethical standards. As executive behavior continues to shape the economic landscape, research at the intersection of psychology and business holds the promise of more equitable and effective governance models in the future.
Subject of Research: People
Article Title: Chief Executive Officer (CEO) Machiavellianism and Executive Pay
Web References: http://dx.doi.org/10.1037/apl0001290
Image Credits: Whit Pruitt
Keywords: Corporations, Economic decision making, Behavioral economics, Personality traits
