Document Type

Article

Language

eng

Format of Original

28 p.

Publication Date

6-2014

Publisher

SAGE Publications

Source Publication

Journal of Management

Source ISSN

0149-2063

Abstract

In this study we introduce a justice perspective to examining the result of bargaining between CEOs and boards over the allocation of firm residuals that ultimately determines CEO compensation. Framing CEO pay as the result of bargaining between CEOs and boards focuses attention on the power of CEOs to increase their share of firm residuals in the form of increased compensation, and the diligence of boards of directors to constrain CEO opportunism. Framing this negotiation through a theory of justice offers an alternative perspective to the search for pay-performance sensitivity. We predict and find that as board diligence in controlling opportunism declines and CEO power increases, CEOs are increasingly able to capture a larger portion of firm residuals relative to shareholders. This finding supports critics who charge that CEO pay violates norms of distributive and procedural justice.

Comments

Accepted version. Journal of Management, (June 2014). DOI. © SAGE Publications 2014. Used with permission.

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