The impact of pay on CEO turnover: A test of two perspectives
AbstractWe investigate the impact of pay on CEO turnover from two perspectives. One is managerial power perspective that focuses on power in the setting of CEO pay. The other is tournament theory that treats CEO pay as a top prize designed to motivate executives to work hard for the top position. Building on research that highlights the impact of power dynamics at the top of the firm on CEO turnover, we propose that managerial power perspective suggests a negative impact of CEO pay on CEO turnover, while tournament theory suggests a positive impact. Using data from a sample of 313 large U.S. companies from 1988 to 1997, we find that both the level of CEO pay and its ratio over the average pay of the firm's four other highest paid executives have a negative impact on CEO turnover.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Business Research.
Volume (Year): 63 (2010)
Issue (Month): 7 (July)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jbusres
Executive pay Executive turnover Managerial power Tournament theory;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lazear, Edward P & Rosen, Sherwin, 1981.
"Rank-Order Tournaments as Optimum Labor Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 89(5), pages 841-64, October.
- Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
- Sherwin Rosen, 1985.
"Prizes and Incentives in Elimination Tournaments,"
NBER Working Papers
1668, National Bureau of Economic Research, Inc.
- Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-80, April.
- Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 606-28, October.
- Bognanno, Michael L, 2001. "Corporate Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 290-315, April.
- Ensley, Michael D. & Pearson, Allison W. & Sardeshmukh, Shruti R, 2007. "The negative consequences of pay dispersion in family and non-family top management teams: an exploratory analysis of new venture, high-growth firms," Journal of Business Research, Elsevier, vol. 60(10), pages 1039-1047, October.
- Khan, Raihan & Dharwadkar, Ravi & Brandes, Pamela, 2005. "Institutional ownership and CEO compensation: a longitudinal examination," Journal of Business Research, Elsevier, vol. 58(8), pages 1078-1088, August.
- Dahl, Drew, 1994. "Successor origin, initiating force, and managerial tenure in banking," Journal of Business Research, Elsevier, vol. 29(1), pages 47-55, January.
- Humphreys, Brad & Paul, Rodney & Weinbach, Andrew, 2011. "CEO Turnover: More Evidence on the Role of Performance Expectations," Working Papers 2011-14, University of Alberta, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.