Do CEOs Ever Lose? Fairness Perspective on the Allocation of Residuals Between CEOs and Shareholders

Kalin Kolev, Robert M. Wiseman, Luis R. Gomez-Mejia

Research output: Contribution to journalArticle

15 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)610-637
Number of pages28
JournalJournal of Management
Volume43
Issue number2
DOIs
StatePublished - Feb 1 2017

Keywords

  • CEO compensation
  • agency theory
  • board monitoring
  • distributive justice

ASJC Scopus subject areas

  • Finance
  • Strategy and Management

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