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How sensitive is executive compensation to organizational size?

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  • Richard A. Lambert
  • David F. Larcker
  • Keith Weigelt

Abstract

Prior empirical research has documented a large cross‐sectional correlation between the level of executive pay and firm size. In contrast, this paper examines the association between percentage changes in executive compensation and percentage changes in organizational size. We analyze compensation and size data for executives at several levels of the corporate hierarchy for a sample of 303 firms. Our results indicate that the correlation between compensation and size is much smaller, although still statistically significant, in changes than in levels. This suggests that changes in an executive's compensation are not primarily driven by changes in organizational size.

Suggested Citation

  • Richard A. Lambert & David F. Larcker & Keith Weigelt, 1991. "How sensitive is executive compensation to organizational size?," Strategic Management Journal, Wiley Blackwell, vol. 12(5), pages 395-402, July.
    • Handle: RePEc:bla:stratm:v:12:y:1991:i:5:p:395-402
    DOI: 10.1002/smj.4250120506
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    Cited by:

    1. Galal Elhagrasey & J. Harrison & Rogene Buchholz, 1998. "Power and Pay: The Politics of CEO Compensation," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 2(4), pages 311-334, December.
    2. Arjen van Witteloostuijn, 1998. "Bridging Behavioral and Economic Theories of Decline: Organizational Inertia, Strategic Competition, and Chronic Failure," Management Science, INFORMS, vol. 44(4), pages 501-519, April.
    3. Nicola Meccheri & Luciano Fanti, 2012. "Managerial Delegation Schemes in a Duopoly with Endogenous Production Costs: A Comparison of Sales and Relative Profit Delegation under Centralised Unionisation," Working Paper series 44_12, Rimini Centre for Economic Analysis.
    4. Ravi Dharwadkar & Maria Goranova & Pamela Brandes & Raihan Khan, 2008. "Institutional Ownership and Monitoring Effectiveness: It's Not Just How Much but What Else You Own," Organization Science, INFORMS, vol. 19(3), pages 419-440, June.
    5. Benoît Pigé, 1994. "La politique de rémunération en tant qu'incitation à la performance des dirigeants," Post-Print hal-02175846, HAL.
    6. Pamela Brandes & Ravi Dharwadkar & Jonathan F. Ross & Linna Shi, 2022. "Time is of the Essence!: Retired Independent Directors’ Contributions to Board Effectiveness," Journal of Business Ethics, Springer, vol. 179(3), pages 767-793, September.
    7. William G. Hardin, III, 1998. "Executive Compensation in EREITs: EREIT Size is But One Determinant," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 401-410.
    8. Hill, Mary S. & Lopez, Thomas J. & Reitenga, Austin L., 2016. "CEO excess compensation: The impact of firm size and managerial power," Advances in accounting, Elsevier, vol. 33(C), pages 35-46.
    9. Angel, Pedro Ortin & Fumas, Vicente Salas, 1997. "The compensation of Spanish executives: A test of a managerial talent allocation model," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 511-531, July.
    10. van Witteloostuijn, A. & Boone, C.A.J.J., 1997. "A game theory of organizational ecology : a model of managerial inertia and market selection," Research Memorandum 005, Maastricht University, Netherlands Institute of Business Organization and Strategy Research (NIBOR).
    11. Iván Barreda-Tarrazona & Nikolaos Georgantzís & Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2012. "Managerial compensation contracts in quantity-setting duopoly," Working Papers 2012/17, Economics Department, Universitat Jaume I, Castellón (Spain).
    12. P. Herings & Kirsten Rohde, 2008. "On the completeness of complete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 37(2), pages 171-201, November.
    13. Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2010. "Endogenous managerial incentive contracts in a differentiated duopoly, with and without commitment," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(8), pages 531-543, December.
    14. Aurélien Eminet & Zied Guedri & Stefan Asseman, 2009. "Le dirigeant est-il l’architecte de sa rémunération? Structure de contrôle du conseil d’administration et mobilisation du capital social," Revue Finance Contrôle Stratégie, revues.org, vol. 12(3), pages 5-36, September.
    15. Katja Rost & Margit Osterloh, 2008. "Determinants of Directors? Pay in Switzerland: ?Optimal-Contract? versus ?Fat Cat? Explanation," CREMA Working Paper Series 2008-26, Center for Research in Economics, Management and the Arts (CREMA).
    16. Evangelos Mitrokostas & Emmanuel Petrakis, 2014. "Organizational structure, strategic delegation and innovation in oligopolistic industries," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(1), pages 1-24, January.
    17. 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.
    18. Short, Jeremy C. & Palmer, Timothy B., 2003. "Organizational performance referents: An empirical examination of their content and influences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 90(2), pages 209-224, March.
    19. Carr, Michael D., 2011. "Work hours and wage inequality: Evidence from the 2004 WERS," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(4), pages 417-427, August.
    20. Barreda-Tarrazona, Iván & Georgantzís, Nikolaos & Manasakis, Constantine & Mitrokostas, Evangelos & Petrakis, Emmanuel, 2016. "Endogenous managerial compensation contracts in experimental quantity-setting duopolies," Economic Modelling, Elsevier, vol. 54(C), pages 205-217.
    21. Monique Calvi-Reveyron, 1999. "Risque de surinvestissement, signalisation et annonce du dividende:le cas français," Revue Finance Contrôle Stratégie, revues.org, vol. 2(3), pages 115-145, September.
    22. Constantine Manasakis & Evangelos Mitrokostas & Emmanuel Petrakis, 2007. "Endogenous Strategic Managerial Incentive Contracts," Working Papers 0706, University of Crete, Department of Economics.
    23. Toyne, Michael F. & Millar, James A. & Dixon, Bruce L., 2000. "The relation between CEO control and the risk of CEO compensation," Journal of Corporate Finance, Elsevier, vol. 6(3), pages 291-306, September.
    24. Chenli Yin & Dan Li & Maria Paz Salmador, 2022. "Institutional change of compensation policy and its impact on CEO turnover and firm performance," Review of Managerial Science, Springer, vol. 16(8), pages 2527-2552, November.

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