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This paper examines variations in executive pay as a function of CEO power. We assume that CEOs optimize their pay conditional upon their ability to shape decisions that favour their interests. Power is inferred from overt manifestations such as share holdings, but also from covert sources such as a CEOs' social capital. Two components of compensation are considered: base pay and bonus. While financial performance, firm size, and other factors are held constant, the results show overt power as measured by CEO, and CEO-family equity holdings, to have a curvilinear relationship with executive compensation. Proxies of covert power include tenure, being (one of) the founder(s), and firm diversification. These variables magnify or moderate the effect of equity holdings on compensation. The power effects are most pronounced for the size of CEO bonus.
executive compensation, shareholdings, corporate governance, power, agency theory
Barkema, H. G., & Pennings, J. M. (1998). Top Management Pay: Impact of Overt and Covert Power. Organization Studies, 19 (6), 975-1003. http://dx.doi.org/10.1177/017084069801900604
Date Posted: 27 November 2017
This document has been peer reviewed.