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A study of CEO power, pay structure, and firm performance

Published online by Cambridge University Press:  16 January 2014

Chengli Tien*
Department of East Asian Studies, National Taiwan Normal University, Taipei, Taiwan, ROC
Chien-Nan Chen
Department of Business Administration, National Dong Hwa University, Hualien, Taiwan, ROC
Cheng-Min Chuang
Department of International Business, National Taiwan University, Taipei, Taiwan, ROC
Corresponding author:


This study has extended existing research on CEO power, pay structure, and firm performance, offering models based mainly on agency theory and managerial power theory, and testing hypotheses using data from 112 companies across a five-year span (2001–2005) in computer-related industry groups in the United States. The results indicated that power from executive directorship positively impacts a firm's return on assets and return on equity, and that CEO power from duality negatively impacts CEO long-term pay and total pay, while CEO power from tenure positively impacts CEO long-term pay and pay leverage, and composite power negatively impacts short-term pay. Evidence for CEO pay as a mediator between CEO power and firm performance revealed that CEO short-term pay positively impacts a firm's return on assets and international performance but negatively impacts its market value, regardless of which source of power is being controlled. CEO total pay positively impacts a firm's return on assets and international performance, with power from CEO duality, directorship, or composite power being controlled. Hence, and in general, CEO pay fails to significantly mediate the relationships between CEO power and firm performance. The contributions include a multiple-perspective study of CEO power, compensation, and firm performance to comprehensively discover each of their respective relationships. This study has further extended the debate over agency perspectives with stewardship perspectives to fill knowledge and theoretical gaps. Thus, evidence-based findings provide boards of directors with practical knowledge for sound governance with another avenue for future research in corporate governance.

Research Article
Copyright © Cambridge University Press and Australian and New Zealand Academy of Management 2013 

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