Effect of relative decision monitoring on chief executive compensation

Article Abstract:

This study investigated the effects of relative decision monitoring whereby decisions are compared to those of competitors, on chief executive officer (CEO) compensation. We tested for both cash compensation (salary plus bonus) and cash-plus-stock-option compensation. The study's premise was that, to the extenct boards of directors consider behavioral information in the CEO evaluation process, performance should have a stronger influence on pay when CEO decisions differ from typical industry decisions. Thus, we compared critical strategic decisions of CEOs with the decisions of same-industry competitors. Results indicate that unique decision making significantly moderates the relationship between performance and compensation under some, but not all, conditions. (Reprinted by permission of the publisher.)

Decision-making, Decision making

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Information-processing demands as a determinant of CEO compensation

Article Abstract:

Early research found little relationship between CEO pay and firm performance. Therefore, recent work on CEOs' compensation has focused less on the substantive nature of the job performed by such executives and more on the social and political context in which their pay is set. This study returns attention to the substantive nature of CEOs' jobs. Specifically, we argue that CEOs are paid for the level of information processing that their jobs require. Results from four industries support this view: chief executive compensation was higher in firms whose diversification strategy, approach to technology, and top management team structure placed particularly high information-processing demands on their CEOs. (Reprinted by permission of the publisher.)

Executive ability, Human information processing

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