Online from: 2008
Subject Area: Strategy
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|Title:||CEO pay as a reflection of power or performance: an empirical test for The Netherlands, 2002-2006|
|Author(s):||Gerwin Van der Laan, (Utrecht University, Utrecht, The Netherlands)|
|Citation:||Gerwin Van der Laan, (2010) "CEO pay as a reflection of power or performance: an empirical test for The Netherlands, 2002-2006", Journal of Strategy and Management, Vol. 3 Iss: 2, pp.157 - 173|
|Keywords:||Chief executives, Compensation, Corporate governance, Management power|
|Article type:||Research paper|
|DOI:||10.1108/17554251011041797 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
Purpose – Previous empirical research interprets results from pay-performance studies in the light of either agency theory or managerial power theory. This paper aims to directly estimate the relationship between CEO power, and compensation structure, level, and performance-sensitivity. In doing so, it seeks to test the crucial assumption in managerial power theory according to which more powerful CEOs are able to enjoy higher and less performance-sensitive compensation.
Design/methodology/approach – The hypotheses are tested on a detailed dataset, covering compensation for CEOs in virtually all Dutch stock-listed companies, for the period 2002-2006. The paper tests whether the findings are robust against different lag structures and firm size classes.
Findings – In general, most of the multi-dimensional measures of power do not appear to have a strong effect on compensation, with one exception: non-Dutch CEOs receive more variable compensation, and receive higher and less performance-sensitive pay than their Dutch colleagues.
Originality/value – This paper contributes to the extant CEO compensation literature, which to date relies on interpretations of findings in pay-for-performance studies to argue for either agency or managerial power theory. The direct test of the relationship between power and compensation emphasises the importance of one dimension of a multidimensional power construct. As strong effects of performance of compensation are not found either, the paper suggests that the bipolar debate be extended to include other explanations of compensation arrangements.
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