Skip to main content
SpringerLink
Log in

CEO Compensation

  • Reference work entry
  • First Online:
The Palgrave Encyclopedia of Strategic Management

  • 200 Accesses

Abstract

Theory suggests that agency conflicts can be partially mitigated through effective and well-designed CEO compensation. In the modern era, equity-based compensation has been the primary means used by firms to achieve incentive alignment. However, findings from empirical research are somewhat at odds with agency theory-inspired conventional wisdom and suggest the need to focus future research on areas that promise to advance our understanding of how executives perceive and respond to compensation: pay and pay disparities within and among levels of analysis, finer-grained distinctions among individual pay elements, and causes of unintended consequences of incentives.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 1,099.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 1,699.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Aboody, D., and R. Kasznik. 2000. CEO stock option awards and the timing of corporate voluntary disclosures. Journal of Accounting and Economics 29: 73–100.

    Article  Google Scholar 

  • Bergstresser, D., and T. Philippon. 2006. CEO incentives and earnings management. Journal of Financial Economics 80: 511–529.

    Article  Google Scholar 

  • Berle, A.A., and G.C. Means. 1932. The modern corporation and private property. New York: Harcourt, Brace & World.

    Google Scholar 

  • Bliss, R.T., and R.J. Rosen. 2001. CEO compensation and bank mergers. Journal of Financial Economics 61: 107–138.

    Article  Google Scholar 

  • Bloom, M. 1999. The performance effects of pay dispersion on individuals and organizations. Academy of Management Journal 42: 25–40.

    Google Scholar 

  • Burns, N., and S. Kedia. 2006. The impact of performance-based compensation on misreporting. Journal of Financial Economics 79: 35–67.

    Article  Google Scholar 

  • Carpenter, M.A., and W.G. Sanders. 2002. Top management team compensation: The missing link between CEO pay and firm performance? Strategic Management Journal 23: 367–375.

    Article  Google Scholar 

  • Carpenter, M.A., and W.G. Sanders. 2004. The effects of top management team pay and firm internationalization on MNC performance. Journal of Management 30: 509–528.

    Article  Google Scholar 

  • Certo, S.T., C.M. Daily, A.A. Cannella Jr., and D.R. Dalton. 2003. Giving money to get money: How CEO stock options and CEO equity enhance IPO valuations. Academy of Management Journal 46: 643–653.

    Google Scholar 

  • Dalton, D.R., M.A. Hitt, S.T. Certo, and C.M. Dalton. 2007. The fundamental agency problem and its mitigation. In Academy of management annals, ed. J.F. Walsh and A.P. Brief. New York: Erlbaum.

    Google Scholar 

  • Devers, C.E., A.A. Cannella, G.P. Reilly, and M.E. Yoder. 2007. Executive compensation: A multidisciplinary review of recent developments. Journal of Management 33: 1016–1072.

    Article  Google Scholar 

  • Devers, C.E., G. McNamara, R.M. Wiseman, and M. Arrfelt. 2008. Moving closer to the action: Examining compensation design effects on firm risk. Organization Science 19: 548–566.

    Article  Google Scholar 

  • Eisenhardt, K.M. 1989. Agency theory: An assessment and review. Academy of Management Review 14: 57–74.

    Article  Google Scholar 

  • Finkelstein, S., D.C. Hambrick, and A.A. Cannella Jr. 2009. Strategic leadership: Theory and research on executives, top management teams, and boards. Oxford: Oxford University Press.

    Google Scholar 

  • Fredrickson, J.W., A. Davis-Blake, and W.G. Sanders. 2010. Sharing the wealth: Social comparisons and pay dispersion in the CEO’s top team. Strategic Management Journal 31: 1031–1053.

    Article  Google Scholar 

  • Grinstein, Y., and P. Hribar. 2004. CEO compensation and incentives: Evidence from M&A bonuses. Journal of Financial Economics 73: 119–143.

    Article  Google Scholar 

  • Guidry, F., A.J. Leone, and S. Rock. 1999. Earnings-based bonus plans and earnings management by business-unit managers. Journal of Accounting and Economics 26: 113–142.

    Article  Google Scholar 

  • Harford, J., and K. Li. 2007. Decoupling CEO wealth and firm performance: The case of acquiring CEOs. Journal of Finance 62: 917–949.

    Article  Google Scholar 

  • Harris, J., and P. Bromiley. 2007. Incentives to cheat: The influence of executive compensation and performance on financial misrepresentation. Organization Science 18: 350–367.

    Article  Google Scholar 

  • Henderson, A.D., and J.W. Fredrickson. 2001. Top management team coordination needs and the CEO pay gap: A competitive test of economic and behavioral views. Academy of Management Journal 44: 96–117.

    Google Scholar 

  • Jensen, M., and W. Meckling. 1976. Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics 3: 305–360.

    Article  Google Scholar 

  • Jensen, M.C., and K.J. Murphy. 1990. Performance pay and top-management incentives. Journal of Political Economy 98: 225–264.

    Article  Google Scholar 

  • Larraza-Kintana, M., R.M. Wiseman, L.R. Gomez-Mejia, and T.M. Welbourne. 2007. Disentangling compensation and employment risks using the behavioral agency model. Strategic Management Journal 28: 1001–1019.

    Article  Google Scholar 

  • Lazear, E.P., and S. Rosen. 1981. Rank-order tournaments as optimum labor contracts. Journal of Political Economy 89: 841–864.

    Article  Google Scholar 

  • Lie, E. 2005. On the timing of CEO stock option awards. Management Science 51: 802–812.

    Article  Google Scholar 

  • Main, B., C.A. O’Reilly, and J. Wade. 1993. Top executive pay: Tournament or teamwork? Journal of Labor Economics 11: 607–628.

    Google Scholar 

  • Pfeffer, J. 2007. Human resources from an organizational behavior perspective: Some paradoxes explained. Journal of Economic Perspectives 21: 115–134.

    Article  Google Scholar 

  • Sanders, W.G. 2001. Behavioral responses of CEOs to stock ownership and stock option pay. Academy of Management Journal 44: 477–492.

    Google Scholar 

  • Sanders, W.G., and M.A. Carpenter. 2003. Strategic satisficing? A behavioral-agency theory perspective on stock repurchase program announcements. Academy of Management Journal 46: 160–178.

    Google Scholar 

  • Sanders, W.G., and D.C. Hambrick. 2007. Swinging for the fences: The effects of CEO stock options on company risk taking and performance. Academy of Management Journal 50: 1055–1078.

    Article  Google Scholar 

  • Shaw, J.D., N. Gupta, and J.E. Delery. 2002. Pay dispersion and workforce performance: Moderating effects of incentives and interdependence. Strategic Management Journal 23: 491.

    Article  Google Scholar 

  • Siegel, P.A., and D.C. Hambrick. 2005. Pay disparities within top management groups: Evidence of harmful effects on performance of high-technology firms. Organization Science 16: 259–274.

    Article  Google Scholar 

  • Souder, D., and P. Bromiley. Forthcoming. Explaining temporal orientation: Evidence from the durability of firms’ capital investments. Strategic Management Journal.

    Google Scholar 

  • Tosi, H.L., S. Werner, J.P. Katz, and L.R. Gomez-Mejia. 2000. How much does performance matter? A metaanalysis of CEO pay studies. Journal of Management 26: 301–339.

    Article  Google Scholar 

  • Wade, J.B., C.A. O’Reilly, and T.G. Pollock. 2006. Overpaid CEOs and underpaid managers: Fairness and executive compensation. Organization Science 17: 527–544.

    Article  Google Scholar 

  • Yermack, D. 1997. Good timing: CEO stock option awards and company news announcements. Journal of Finance 52: 449–476.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Texas A&M University, College Station, TX, USA

    Cynthia E. Devers

  2. Rice University, Houston, TX, USA

    W. Gerard Sanders

Authors
  1. Cynthia E. Devers
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. W. Gerard Sanders
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Cynthia E. Devers .

Editor information

Editors and Affiliations

  1. GSBPP, Naval Postgraduate School, Monterey, CA, USA

    Mie Augier

  2. Berkeley Research Group, LLC, Emeryville, CA, USA

    David J. Teece

  3. Haas School of Business, University of California, Berkeley, Berkeley, CA, USA

    David J. Teece

Copyright information

© 2018 Macmillan Publishers Ltd., part of Springer Nature

About this entry

Check for updates. Verify currency and authenticity via CrossMark

Cite this entry

Devers, C.E., Sanders, W.G. (2018). CEO Compensation. In: Augier, M., Teece, D.J. (eds) The Palgrave Encyclopedia of Strategic Management. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-00772-8_30

Download citation

Publish with us

Policies and ethics

Search

Navigation