Are Reputation and Power Compensating Differentials in CEO Compensation?

This study develops and tests an inclusive, interdisciplinary model of executive compensation using agency theory as a foundation. The study introduces a theory-based multidimensional size index measure, and extends the literature by the inclusion of nonpecuniary compensation (prestige and power) in the model. The empirical test used data from chief executive officer (CEO) compensation in 72 US firms covering a six-year period. A direct relationship between CEO compensation and firm size, ownership concentration, and firm profit performance was empirically supported. The firm's reputation was a statistically significant factor in the 1986–1988 time period.