Using data from 62 U.S. industries for 1984-2000, this article explores the connections between shareholder value strategies, such as mergers and layoffs, and related industry-level changes, such as de-unionization, computer technology, and profitability. In line with shareholder value arguments, mergers occurred in industries with low profits, and industries where mergers were active subsequently saw an increase in layoffs. Industries with a high level of mergers increased investment in computer technology. This technology displaced workers through layoffs and was focused on reducing unionized workforces. Contrary to shareholder value arguments, there is no evidence that mergers or layoffs returned industries to profitability.

This study examines how firms use benchmarking information about peers to determine the compensation that they offer to chief executive officers (CEOs). It jointly addresses two distinct perspectives: pay equity and managerial power. Pay inequity provides strong motivation for CEOs to restore equity, by promoting the logic of external fairness and urging boards of directors to implement peer benchmarking and adjust the focal CEO’s compensation levels. Although pay inequity may motivate CEOs to restore equity, their reaction to inequity may be effective only when they have sufficient power over the board of directors to influence the pay-setting process. Results from a sample of 1,555 CEOs generally support predictions about the moderating effects of CEO power in the relationship between a focal CEO’s pay and peer CEOs’ pay. The compensation for underpaid CEOs with relatively greater power over the board is associated with their peers’ compensation, suggesting that peer benchmarking is more aggressively used to adjust CEO compensation upward. For overpaid CEOs, the relationship between the focal CEO’s pay and peer CEOs’ pay is weaker when the CEOs have greater influence over the board, suggesting that such CEOs are able to avoid the use of benchmarking and downward adjustments of pay.

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Once a preferred strategy, corporate diversification into disparate lines of business has gradually declined in the U.S. over the past several decades. We argue that changes that occurred in a closely related domain—graduate business education—are important in understanding variation in de-diversification across firms. Building on a historical account of the transformation of business education, we explain how the rise of financial economics and agency-theoretic logic in business education changed students’ views about diversification. Nearly 20 years later, these MBA graduates rose to top decision-making positions and put the brakes on diversification. Using data on CEOs who ran 640 large U.S. corporations from 1985 to 2015, we show that CEOs who earned an MBA before the 1970s actively pursued diversification, whereas the next cohort of CEOs, who had been exposed to agency-theoretic logic in financial economics, refrained from it. We also demonstrate that the degree of managerial discretion moderated the effect of the CEO’s MBA education. Our study shows that institutional change in one domain (i.e., business education) contributed to change in another domain (i.e., corporate diversification), albeit with a considerable time lag.

The language that signals conformity to a prevailing norm can contribute to the appearance of managerial competency and organizational legitimacy. We argue that top corporate managers’ use of language that is congruent with a prevailing norm leads the boards of directors to evaluate the managers more favourably and to grant a higher level of compensation. We test this argument by analysing the letters to shareholders from 334 US firms and examine the CEOs’ expression of the shareholder value principle, which is a prevailing model of corporate governance in the USA. We found that the use of shareholder‐value language is significantly related to a higher level of CEO compensation and that the effect of shareholder‐value language is greater when shareholder activism is stronger.

On the basis of the view that the board’s evaluation of the CEO is determined by the board decision-making as a group, we adopt the faultline approach to analyze group dynamics in the board. Faultlines can split a board based on the alignment of multiple attributes of individual directors and potentially create subgroups within the board. In this study, we argue that different types of faultlines have distinct effects on board decision-making. Specifically, we predict that demographic faultlines can increase conflicts among directors, hampering the board’s ability to decide on CEO dismissal when firm performance is below the aspiration level. On the other hand, information-based faultlines can facilitate exchange of diverse knowledge and elaboration of alternative perspectives, which can improve the board’s ability to dismiss a CEO when firm performance is below the aspiration level. Our analysis of S&P 500 boards supports our prediction that board faultlines based on demographic attributes of directors significantly reduce the board’s ability to fire the CEO when firm performance is below the aspiration level, whereas faultlines based on information-related attributes magnify the board’s ability to dismiss a poor-performing CEO. By demonstrating different effects of faultlines based on heterogenous types of director attributes, this study contributes to the board faultline literature. We also contribute to CEO dismissal research by showing how group dynamics of boards moderates the relationship between firm performance and CEO dismissal.

Manuscript Type Empirical Research Question/Issue When the stock options granted to CEOs go underwater, boards of directors tend to award additional stock options to their CEOs. Drawing on agency theory and attribution theory, this study explores social psychological mechanisms that explain why boards of directors increase new option grants to CEOs in response to underwater options. Research Findings/Insights Using the compensation data of CEOs at 966 US firms, we found that contextual factors such as market conditions and industry performance affected boards of directors' decisions to grant new stock options. Consistent with our hypotheses, boards of directors granted a greater number of new options to CEOs in response to CEOs' underwater options during the recession period than the recovery period, and they granted fewer new options when the firm's industry performance was high rather than low. Theoretical/Academic Implications This study incorporates attribution theory in understanding boards of directors' causal attribution of firm performance and its impact on executive compensation. It complements earlier studies on causal attribution by exploring the role of contextual factors. It also contributes to the research by examining the attribution process of boards of directors rather than that of top management, as well as the consequences of the causal attribution in terms of ex‐post adjustment in executive option compensation. Practitioner/Policy Implications This study provides up‐to‐date and improved evidence on boards' decision making about executive stock options. Practitioners and policy makers can benefit from the study's findings that board members rely on contextual information about the market and the competition when they make causal attribution of firm performance changes, which tends to affect their decisions about executive compensation.

While many studies have explored the issue of women’s representation among top management, little is known about the gender gap in compensation among those who reached the top. Using data on 7,711 executives at 831 U.S. firms, this study investigates social-psychological factors that explain the gender gap in executive compensation. Consistent with theories on social identity and demographic similarity effects, the gender gap in executive pay is smaller when a greater number of women sit on the compensation committee of the board, which is the group responsible for setting executive compensation. However, the presence of a female chief executive officer (CEO) is not associated with the compensation of female non-CEO executives working under the female boss. The findings highlight the need to study women’s representation on corporate boards.