Although studies about the determinants of CEO compensation are ubiquitous, the balance of evidence for one of the more controversial theoretical approaches, managerial power theory, remains inconclusive. We provide a meta-analysis of 219 U.S.-based studies, focusing on the relationships between indicators of managerial power, and levels of CEO compensation and CEO pay-performance sensitivities. Our results indicate that managerial power theory is well-equipped for predicting core compensation variables like total cash and total compensation, but less so for predicting the sensitivity of pay to performance. In most situations where CEOs are expected to have power over the pay setting process, they receive significantly higher levels of total cash and total compensation. In contrast, where boards are expected to have more power, CEOs receive lower total cash and total compensation. In addition, powerful directors also appear to be able to establish tighter links between CEO compensation and firm performance, and can accomplish this even in the face of powerful CEOs. We discuss implications for theory and research regarding the determinants of executive compensation.
- CEO compensation,
- corporate governance,
- compensation design,
- meta analysis
Available at: http://works.bepress.com/jordanotten/5/