CEO compensation: A stakeholder-bargaining perspective of the resource advantage
This article is an early view and has not yet been published in a specific issue of the Strategic Management Jounral
Previous research provides important insights into the role of structural sources of corporate power and social influence tactics in enabling top managers to increase their discretionary power and pay.The literature on executive power has given less emphasis, however, to how strategic factors related to the generation and distribution of firm rents and value can shape CEO pay and its composition. These include the firm’s capacity to generate rents and value, the uncertainty of its resource advantage, and the competitive interaction between firm stakeholders, shareholders and top management. This paper attempts to fill this gap by considering an analytical framework in which the CEO and other firm stakeholders interact over the firm’s resource surplus as utility-maximizing claimants based on their relative bargaining power while providing shareholders their market-based required return. Results from the model yield a number of cogent strategic insights and predictions on the causal interplay between CEO pay, firm growth and risk characteristics, stakeholder management, corporate strategy (e.g. offshoring production), and behavioral biases such as CEO optimism and overconfidence. We further show that many predictions and results are unique to the proposed framework and do not follow from principal-agency contracting theory of CEO pay.