Pay dispersion among the top management team and outside directors: Its impact on firm risk and firm performance

Pay dispersion among the top management team and outside directors: Its impact on firm risk and... Two key groups central to improving firm performance are the top management team (TMT) and the board of directors. Executives undertake strategic actions, whereas board members fulfill their resource provision and monitoring roles. Drawing on tournament theory and equity theory, we propose that high pay dispersion among outside directors and the TMT is positively associated with strategic risk, whereas high (low) TMT pay dispersion and low (high) outside director pay dispersion are positively associated with firm performance. Our predictor is the unexplained component of horizontal pay dispersion, or the residual of pay dispersion resulting from regressing pay on observable firm, industry, period, and individual characteristics. Our results highlight the importance of unexplained pay dispersion for TMTs, but not for boards of directors, in improving firm performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Human Resource Management Wiley

Pay dispersion among the top management team and outside directors: Its impact on firm risk and firm performance

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
© 2018 Wiley Periodicals, Inc.
ISSN
0090-4848
eISSN
1099-050X
D.O.I.
10.1002/hrm.21872
Publisher site
See Article on Publisher Site

Abstract

Two key groups central to improving firm performance are the top management team (TMT) and the board of directors. Executives undertake strategic actions, whereas board members fulfill their resource provision and monitoring roles. Drawing on tournament theory and equity theory, we propose that high pay dispersion among outside directors and the TMT is positively associated with strategic risk, whereas high (low) TMT pay dispersion and low (high) outside director pay dispersion are positively associated with firm performance. Our predictor is the unexplained component of horizontal pay dispersion, or the residual of pay dispersion resulting from regressing pay on observable firm, industry, period, and individual characteristics. Our results highlight the importance of unexplained pay dispersion for TMTs, but not for boards of directors, in improving firm performance.

Journal

Human Resource ManagementWiley

Published: Jan 1, 2018

Keywords: ; ; ; ; ;

References

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