A balanced and well-researched look at the actual ramifications of excessive executive compensation by Awie HW Foong and Mak Yuen Teen of AsiaOne Busines:

[By] compensating millions of dollars to a CEO who has failed to perform, and at the same time laying off the employees en masse, these companies are effectively sending a negative signal about organisational fairness.

The ramification of perceived unfairness is likely to be a long term one. Past studies have shown that the feelings of unfairness would lead to poor employee loyalty and engagement, and consequently poor work performance.

Based on data from the Watson Wyatt's employee opinion surveys in 2004 and 2007, we found that it is the employees' perception of the fairness of the reward system, not how satisfied they are with the rewards, that has the stronger effect on their loyalty to the organisation. The findings suggest that employees want to be treated fairly. That includes a salary and reward package that is equitable to the industry norms as well as a fair process in determining those rewards. Employees also expect that the performance and reward management process is consistent and clearly communicated to them. The study also found that employees who believe that they are being treated fairly are in turn more willing to stay with the company and to make sacrifices for the company during difficult times...

[Also], a recent study by Charles O'Reilly, the Frank E Buck Professor of Human Resources Management at the Stanford Graduate School of Business, together with James Wade of Rutgers University and Timothy Pollock of Pennsylvania State University found that the effects of unfair executive compensation flow down to lower level managers and employees. Managers who perceive that the CEO is unfairly paid are more likely to leave the company.