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  Top Management Pay: Impact of (C)Overt Power (with Harry Barkema), Organization Studies, 19(6), 1998.

 

Abstract

This paper examines variations in executive compensation as a function of CEO power.   We assume that a CEO’s motivation to optimize his pay is conditional upon his ability to shape decisions that favor his interests. Power is inferred form overt manifestations such as share holdings, but also from covert sources such as  a CEO’s 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.