Extending the Managerial Power Theory of Executive Pay: A Cross National Test

76 Pages Posted: 29 Jan 2008

See all articles by Jordan Otten

Jordan Otten

RSM Erasmus University

Pursey P.M.A.R. Heugens

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Date Written: August 2007, 12

Abstract

Contextual factors are typically neglected in both theorizing and empirical tests on executive pay. The fast majority of empirical investigations use data from U.S. based firms. Theoretical implications are typically developed, understood and tested on the basis of the U.S. context. However, the U.S. case is not the world wide standard. Pay in other countries is on average considerably lower and have a different pay mix. The puzzle that from the typical use of agency theory can’t be explained is the variance of pay practices that exist not only within countries but also across countries. This paper extends scholars renewed attention to managerial power theory on executive pay. It sets out how and why institutional theory must be included in explanations of executive pay. On the basis of a sample of executive pay packages from 17 different countries we test the theoretical extensions. Results indicate that institutions interact with firm level determinants of executive pay. Explanations for executive pay should therefore account for the variance of pay practices within and across countries. Highlighting that the institutional embeddedness of pay practices play an important role in finding conclusive explanations of current pay practices.

Keywords: managerial power theory, executive pay, executive compensations

JEL Classification: F23, M14, M, J31

Suggested Citation

Otten, Jordan and Heugens, Pursey P.M.A.R., Extending the Managerial Power Theory of Executive Pay: A Cross National Test (August 2007, 12). ERIM Report Series Reference No. ERS-2007-090-ORG. Available at SSRN: https://ssrn.com/abstract=1088215

Jordan Otten (Contact Author)

RSM Erasmus University ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

HOME PAGE: http://jordanotten.googlepages.com

Pursey P.M.A.R. Heugens

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands
0031 10 408 2365 (Phone)
0031 10 408 9012 (Fax)

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