European Business Schools Librarian's Group

Les Cahiers de Recherche,
HEC Paris

No 741: CEO compensation strategies: consequences on the structure and Management of Executive Pay

Georges TREPO , Assaad EL AKREMI and Patrice ROUSSEL
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Assaad EL AKREMI: Institut Supérieur de Gestion, Tunis University
Patrice ROUSSEL: Toulouse University

Abstract: The aim of this research is to study compensation strategies for Chief Executive Officers (CEO) from various economic, political and symbolic perspectives. A theoretical model was developed to study the hypothetical influence of several phenomena suggested by theoretical work on executive compensation. An empirical study was carried out in France on a sample of 106 chief executives from firms amongst the top 700 rated by sales. A structural equation model was tested using Lisrel. The results suggest that agency theory offers a priori the most solid explanation of CEO compensation because of the links observed between the control exercised by the Principal, the intensity of short-term incentives and the sensitivity of direct pay to performance. A detailed analysis of the results also seems to provide substantial support for political and symbolic perspectives. The balance of power between board members and top executives seems to be a determining factor in the determination of the structure and management of CEO compensation. The results of the research suggest that the political perspective remains coherent with agency theory by supposing that CEOs can be tempted to make use of their privileged position concerning compensation decisions.

Keywords: CEO; compensation strategies; structure and management of executive pay; economic power; political power; symbolic perspectives; agency theory

JEL-codes: J31; J33

35 pages, October 1, 2001

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