Theories on executive pay. A literature overview and critical assessment
Executive pay is a major issue in the corporate governance debate. As well in practice as in theory debate still exists how executive pay levels and structures can be explained. This paper provides an overview of 16 theories that have been used in the literature to explain the phenomenon. The theories can be classified into three types of approaches; 1) the value approach; 2) the agency approach; and 3) the symbolic approach. A critical assessment of the theories shows that the dominant use in the literature of the perfect contracting approach of agency theory neglects: 1) the socially determined symbolic value that executive pay could represent, and 2) the contextual conditions under which executive pay is set. A more conclusive understanding of executive pay would be based on considering executive pay as an outcome of socially constructed corporate governance arrangements in which the actors involved have considerable discretion to influence the outcomes. Incorporating such a view in attempts to explain executive pay provides a more conclusive explanation of the recurrent debate on executive pay in theory and practice.
|Date of creation:||Jan 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Sherwin Rosen, 1990. "Contracts and the Market for Executives," NBER Working Papers 3542, National Bureau of Economic Research, Inc.
- Rachel M. Hayes & Scott Schaefer, 2000. "Implicit Contracts and the Explanatory Power of Top Executive Compensation for Future Performance," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 273-293, Summer.
- Bebchuk, Lucian Arye & Fried, Jesse, 2003.
"Executive Compensation as an Agency Problem,"
CEPR Discussion Papers
3961, C.E.P.R. Discussion Papers.
- Michael C. Jensen & Kevin J. Murphy, 1990.
"Ceo Incentives - It'S Not How Much You Pay, But How,"
Journal of Applied Corporate Finance,
Morgan Stanley, vol. 3(3), pages 36-49.
- Frey, Bruno S., 1997. "On the relationship between intrinsic and extrinsic work motivation1," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 427-439, July.
- Murphy, Kevin J., 1997. "Executive compensation and the Modern Industrial Revolution1," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 417-425, July.
- Garvey, Gerald T. & Milbourn, Todd T., 2006. "Asymmetric benchmarking in compensation: Executives are rewarded for good luck but not penalized for bad," Journal of Financial Economics, Elsevier, vol. 82(1), pages 197-225, October.
- Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
- Koppl, Roger, 2000. "Fritz Machlup and Behavioralism," Industrial and Corporate Change, Oxford University Press, vol. 9(4), pages 595-622, December.
- Bruno S. Frey & Margit Osterloh, 2005.
"Yes, Managers Should Be Paid Like Bureaucrats,"
CESifo Working Paper Series
1379, CESifo Group Munich.
- Bruno S. Frey & Margit Osterloh, . "Yes, Managers Should be Paid Like Bureaucrats," IEW - Working Papers 187, Institute for Empirical Research in Economics - University of Zurich.
- Bruno S. Frey & Margit Osterloh, 2004. "Yes, Managers Should Be Paid Like Bureaucrats," CREMA Working Paper Series 2005-03, Center for Research in Economics, Management and the Arts (CREMA).
- Pursey P. M. A. R. Heugens & J. A. (Jordan) Otten, 2007. "Beyond the Dichotomous Worlds Hypothesis: towards a plurality of corporate governance logics," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1288-1300, November.
- Robert Gibbons & Kevin J. Murphy, 1989.
"Relative Performance Evaluation for Chief Executive Officers,"
NBER Working Papers
2944, National Bureau of Economic Research, Inc.
- Robert Gibbons & Kevin J. Murphy, 1990. "Relative performance evaluation for chief executive officers," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(3), pages 30-51, February.
- Gibbons, R. & Murphy, K.J., 1989. "Relative Performance Evaluation For Chief Executive Officers," Working papers 532, Massachusetts Institute of Technology (MIT), Department of Economics.
- Robert Gibbons & Kevin Murphy, 1989. "Relative Performance Evaluation for Chief Executive Officers," Working Papers 628, Princeton University, Department of Economics, Industrial Relations Section..
- Kaplan, Steven N, 1994. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the United States," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 510-46, June.
- Fatemi, Ali & Desai, Anand S. & Katz, Jeffrey P., 2003. "Wealth creation and managerial pay: MVA and EVA as determinants of executive compensation," Global Finance Journal, Elsevier, vol. 14(2), pages 159-179, July.
- Luis Gomez-Mejia & Robert M. Wiseman & Bernadine Johnson Dykes, 2005. "Agency Problems in Diverse Contexts: A Global Perspective," Journal of Management Studies, Wiley Blackwell, vol. 42(7), pages 1507-1517, November.
- Jensen, M.C. & Murphy, K.J., 1988.
"Performance Pay And Top Management Incentives,"
88-04, Rochester, Business - Managerial Economics Research Center.
- Mueller, Dennis C. & Yun, S. Lawrence, 1997. "Managerial discretion and managerial compensation," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 441-454, July.
- Bebchuk, Lucian A. & Fried, Jesse M., 2003. "Executive Compensation as an Agency Problem," Berkeley Olin Program in Law & Economics, Working Paper Series qt81q3136r, Berkeley Olin Program in Law & Economics.
- Prendergast, Canice & Topel, Robert, 1993. "Discretion and bias in performance evaluation," European Economic Review, Elsevier, vol. 37(2-3), pages 355-365, April.
- Kay, Neil, 2000. "Searching for the Firm: The Role of Decision in the Economics of Organizations," Industrial and Corporate Change, Oxford University Press, vol. 9(4), pages 683-707, December.
- Ciscel, David H & Carroll, Thomas M, 1980. "The Determinants of Executive Salaries: An Econometric Survey," The Review of Economics and Statistics, MIT Press, vol. 62(1), pages 7-13, February.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:6969. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.