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First published online May 28, 2008

The Impact of the CEO Pay Gap on Firm Competitive Behavior

Devi R. Gnyawali, Evan H. Offstein, and Rebecca S. LauView all authors and affiliations
Volume 33, Issue 4
https://doi.org/10.1177/1059601108321637

Abstract

The authors investigate how pay differences between the CEO and the rest of the members of the top management team influence a firm's competitive behavior as reflected in the observable and purposeful competitive moves launched by the firm. Using data from the U.S. pharmaceutical industry, the authors found a positive relationship between the CEO pay gap and the volume and complexity dimensions of firm competitive behavior. The authors discuss both theoretical and managerial implications of these findings as they relate to important topics such as competitive strategy, corporate governance, and executive compensation.

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1.
1. We recognize that a firm does not behave on its own; its people or managers do. Individuals compose the firm, and individual and collective decisions of the senior executives and actions they undertake are commonly referred to as “firm behavior.” In the macro-organizational literature, it is common to use terms such as firm, organization, and company in discussing actions and behaviors.
2.
2. A full listing of competitive actions and definitions is available on request.
3.
3. To avoid overweighting the most common types of actions, we created standardized scores for all firms/years for each of the types of actions. These standardized scores have the effect of weighting rarer actions (such as introduction of a new product) more heavily than common decisions such as price changes or new advertising campaigns.
4.
4. Because we examined the effects of pay gap on competitive behavior with a 1-year time lag, the data on CEO pay gap were for 1998, 1999, and 2000.
5.
5. We also conducted separate analyses using the three separate measures of competitive complexity (concentration, dominance, and range), and the results were consistent with those using the composite complexity measure.
6.
6. These listing were compiled using previous coding approaches as a guide (Gnyawali et al., 2002, 2006; Miller & Chen, 1994, 1996) along with qualitative interviews of senior managers within the pharmaceutical industry.

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Published In

Volume 33, Issue 4
Pages: 453 - 484
Article first published online: May 28, 2008
Issue published: August 2008

Keywords

  1. executive compensation
  2. competitive behavior
  3. chief executive officer
  4. top management teams
  5. corporate governance

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Devi R. Gnyawali
Virginia Polytechnic Institute and State University
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Evan H. Offstein
Frostburg State University
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Rebecca S. Lau
Virginia Polytechnic Institute and State University
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