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Strategic LeadershipTheory and Research on Executives, Top Management Teams, and Boards$
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Bert Cannella, Sydney Finkelstein, and Donald C. Hambrick

Print publication date: 2008

Print ISBN-13: 9780195162073

Published to Oxford Scholarship Online: January 2009

DOI: 10.1093/acprof:oso/9780195162073.001.0001

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Executive Compensation

Executive Compensation

Consequences and Distributions

Chapter:
(p.330) 11 Executive Compensation
Source:
Strategic Leadership
Author(s):

Sydney Finkelstein (Contributor Webpage)

Donald C. Hambrick (Contributor Webpage)

Albert A. Cannella

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780195162073.003.0011

The consequences of executive pay are complex and particularly rich in a theoretical and practical sense. This chapter examines one of the most fundamental questions in this regard: Does executive pay affect firm performance? The evidence is decidedly mixed, but raises key questions about pay as a motivator, and the different ways in which executive pay can influence strategic and organizational choices as well as firm performance. This chapter also considers the burgeoning literature on behavioral agency theory, which leads naturally to a comparison of the effects of different types of compensation, especially stock options. A significant part of this chapter is dedicated to an analysis of the determinants and consequences of pay differentials among top management teams, another area of great theoretical interest. Studying pay differentials (or pay dispersion), as well as the pattern of compensation in place among the CEO and other top managers, yields fascinating insights that have important consequences for teamwork, perceived fairness of pay, strategic decision making, and firm performance.

Keywords:   executive compensation, pay distributions, TMT compensation, pay differentials, pay patterns, behavioral agency theory

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