The _____ theory argues that executive pay rises to maintain the same relative relationship with the salaries of lower-level employees.

Question

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The social comparison theory proposes that people evaluate their own pay by comparing it to others in similar positions, and executives may increase their pay to maintain a higher relative position compared to their employees. Option A (economic approach) is more concerned with market forces and supply/demand of executive talent, while option B (team production) emphasizes the importance of collaboration between different levels of employees. Option D (agency) is related to the principal-agent problem, where executives may prioritize their own interests over those of the company.

The _____ Theory Argues That Executive Pay Rises to Maintain