What is it about?
This article examines how firms use benchmarking information about peers to determine the compensation that they offer to chief executive officers (CEOs). Peer benchmarking may motivate CEOs to restore pay equity among the peers, but this reaction to pay inequity is effective only when the CEOs have power over the board of directors to influence the pay-setting process. An analysis of CEO compensation data from S&P 1500 firms support the argument.
Featured Image
Why is it important?
This article integrates pay equity concerns and managerial power perspective to explain the effect of compensation benchmarking. Competitive benchmarking for top executives has been controversial because of its potential abuse by powerful CEOs. This criticism is often based solely on a managerial power perspective. By considering both pay equity and CEO power, this study shows that only powerful CEOs can react to pay inequity by promoting upward pay adjustments when they are underpaid compared to the peers and by avoiding downward adjustments when overpaid.
Perspectives
When you feel you are not being paid as much as the others around you, it is natural to have a strong motive to correct the situation. However, not everyone has power or ability to address this inequity. Some corporate executives may have such power and influence over the pay-setting process. They are sensitive to relative standing among their peers. When they feel they are underpaid, they may be able to pressure the board to adjust the pay upwards. I believe this is at least part of what has been going on in corporate boardrooms. This study shows an important piece that explains this mechanism.
Taekjin Shin
San Diego State University
Read the Original
This page is a summary of: Fair Pay or Power Play? Pay Equity, Managerial Power, and Compensation Adjustments for CEOs, Journal of Management, March 2013, SAGE Publications,
DOI: 10.1177/0149206313478186.
You can read the full text:
Contributors
The following have contributed to this page
