The Impact of the CEO Pay Gap on Firm Competitive Behavior

Gnyawalị, Devi R.; Offstein, Evan H.; Lau, Rebecca S.

doi:10.1177/1059601108321637

Cited by 24 publications

(12 citation statements)

References 60 publications

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“…Melton and Zorn (2000) found a positive relationship between the size of the prize and the player's performance in golf while Becker and Huselid (1992) found the same relationship in car racing. Gnyawali, Offstein, and Lau (2008) also found a positive relationship between what was paid to the CEO and the rest of the top management team as well as competitive behavior in the pharmaceutical industry. Jans and Otten (2008) found evidence of tournament behavior from data that was collected from the UK.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 90%

Gender, Top Management Compensation Gap, and Company Performance: Tournament versus Behavioral Theory

Vieito

2011

Corporate Governance

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Manuscript Type: EmpiricalResearch Question/Issue: This study is among the first to investigate the impact of gender on the relationship between the compensation gap of the CEO and Vice-Presidents on company performance, testing if companies managed by a female CEO or a male CEO follow tournament or behavioral theory. Tournament theory suggests that a large compensation gap between CEO and company Vice-Presidents (VPs) leads to higher company performance; behavioral theory states that higher performance may be achieved with a small compensation gap between CEO and VPs. Additionally the study also investigates if companies managed by a female CEO perform better, or not, than those managed by a male CEO, and if the factors that explain the compensation gap between CEO and VPs in these two groups of companies are the same, or not. Data for the investigation emanated from the USA during the period 1992 to 2004. Research Findings/Insights: The results reflect something quite new in the area -on average, companies managed by a female CEO perform better, and have a smaller compensation gap between the CEO and VPs than companies managed by a male CEO. In companies managed by a female CEO, a smaller difference in the total compensation gap between CEO and Vice-Presidents leads, on average, to higher company performance, however, when the CEO is a male, a higher compensation gap is required to obtain higher company performance. The results provide empirical support that the behavioral theory is predominant in companies managed by a female whereas tournament theory is predominant in companies managed by a male. Theoretical/Academic Implications: The paper fills an important gap in the existing literature by providing econometric evidence that males and females CEOs have a different impact on the relationship between CEO and VPs compensation gap and company performance, and that it is not indifferent to choosing a male or a female CEO in terms of company performance. Practitioner/Policy Implications: This study offers an insight to practitioners and policy makers suggesting that gender influences the relationship between the CEO and Vice-Presidents compensation gap and company performance. Boards may be able to improve company performance if they limit the compensation gap between CEO and VPs when the CEO is a female and extend it, when it is a male.

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Section: Literature Review and Hypotheses Developmentmentioning

confidence: 90%

Gender, Top Management Compensation Gap, and Company Performance: Tournament versus Behavioral Theory

Vieito

2011

Corporate Governance

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“…The strongest incentives lay at the highest level of the organization, wherein exorbitantly high CEO pay inspires the TMT to take actions that maximize their chances of attaining the CEO spot for themselves (Henderson and Fredrickson, 2001). As a result, tournament theory would suggest that a wide CEO-TMT pay gap should increase the volume of a firm's competitive activity (Gnyawali, Offstein, and Lau, 2008).…”

Section: Tournament Theory Antecedentmentioning

confidence: 99%

Competitive repertoire complexity: Governance antecedents and performance outcomes

et al. 2016

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Research summary: Past inquiry has found that implementing complex competitive repertoires (i.e., diverse and dynamic arrays of actions) is challenging, but firms benefit from doing so. Our examination of the antecedents and outcomes of complex competitive repertoires develops a more nuanced perspective. Data from 1,168 firms in 204 industries reveal that complexity initially harms performance, but then becomes a positive factor, except at high levels. We use agency and tournament theories, respectively, to examine how key governance mechanisms—ownership structure and executive compensation—help shape firms' competitive repertoires. We find that the principals of agency theory and the pay gap of tournament theory are both important antecedents of competitive complexity, and an interaction exists wherein firms build especially complex repertoires when both influences are strong. Managerial summary: In boxing, the fight does not always go to the bigger or stronger person, or even to whomever throws the most punches—the fight is sometimes won by the boxer who is unpredictable, such as throwing an uppercut when the opponent expected a right hook. Similarly, when companies compete in the marketplace, advantage is afforded not only to those with more resources or who engage in more competitive activity, but also to those whose actions are unpredictable. In this study, we develop the notion of “competitive complexity,” which describes the diversity and changing nature of a company's competitive moves. Implementing complex competitive repertoires can be painful in the short term but, if done correctly, can help company performance in the long run. Copyright © 2016 John Wiley & Sons, Ltd.

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“…However, empirical fi ndings to date have been inconsistent with the predictions of this agency perspective (Gnyawali, Offstein, & Lau, 2008;Shen, 2003;Sundaramurthy, 2000). Although some researchers have found a positive relationship between board independence and fi rm performance (Ezzamel & Watson, 1993;Rhoades, Rechne, & Sundaramurthy, 2001;Rosenstein & Wyatt, 1990), others have found no relationship (Buchholz & Ribbens, 1994;Daily & Dalton, 1992, 1993Kesner, Victor, & Lamont, 1986;Zahra & Stanton, 1988).…”

Section: Extra-industry Tiesmentioning

confidence: 99%

Board competence and the top management team's external ties for performance

Yoo

Kim

2012

Journal of Management & Organization

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This study explains the inconsistent fi ndings of previous research on board management by examining the direct and interaction effects of board independence and the top management team's external ties on fi rm performance. The results obtained using a multiyear sample of fi rms indicate that outsider-rich boards improved fi rm performance when they worked with top managers imported from outside the focal industry. On the other hand, a high proportion of outsiders on the board and top managers imported from the focal industry were not a desirable combination for fi rm performance. The fi ndings imply that researchers and practitioners should pay more attention to identifying the conditions under which board competence aligns with top management.

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The Impact of the CEO Pay Gap on Firm Competitive Behavior

Cited by 24 publications

References 60 publications

Gender, Top Management Compensation Gap, and Company Performance: Tournament versus Behavioral Theory

Gender, Top Management Compensation Gap, and Company Performance: Tournament versus Behavioral Theory

Competitive repertoire complexity: Governance antecedents and performance outcomes

Board competence and the top management team's external ties for performance

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