Rapidly rising executive salaries have been the subject of debate for decades. Can changes in tax law help to close the ever-widening pay gap? Tobias Bornemann and Mariana Sailer from the WU Department of Finance, Accounting & Statistics have investigated this question.

According to the American Economic Policy Institute, CEOs of US companies earned around 20 times more than the average employee in 1965. By 1989, it was 60 times more. And today? According to 2021 figures, the salary of CEOs is now around 400 times that of the average employee.

Not only in the USA but also worldwide, executive pay levels seem to be rising steadily, with no slowdown in sight. And for a long time, there have been debates about whether the pay gap between the regular workforce and the executive suite is justified. Repeatedly, there have been attempts to regulate executive pay through the tax system. And this has been true for Austria as well. In 2014, Austrian lawmakers passed a new law, under which top-level salaries are now no longer fully tax-deductible, only up to an amount of 500,000 euros.

Tobias Bornemann and Mariana Sailer have investigated how this change in legislation has impacted executive salaries – not very much, as it turns out. The findings show that the uptick in executive salaries has hardly slowed down following the entry into effect of the new law. As they explain in our new Meet Our Researchers video, the additional taxes are hardly ever passed on to the managers.