There is growing concern that over recent decades CEOs tend to earn overwhelmingly more than the average worker. This throws the researchers to question the economic benefit of paying CEOs huge amount of money while we have discouraged workers who may become less productive and therefore lowering the firm profitability. Researchers have taken positions on both sides of the debate over whether the level of CEO’s pay is economically justified or is the result of managerial power. This study sought to establish the extent of power that CEO’s possess among Kenya firms listed at the Nairobi Securities Exchange. CEO’s power was measured in terms of structural power, ownership power, CEO tenure and Board composition. The study used secondary data. Data was collected from 60 firms listed at the NSE. Using a cross sectional design, a regression model was fitted to show the relationship between CEO’s power and CEO’s compensation. Descriptive and inferential results were obtained. The findings revealed that in the Kenyan context CEO’s power does not significantly influence CEO’s compensation. CEO’s pay is market-determined and reflects the bidding by firms for scarce executive talent. The increase in CEO’s pay is due to the rise in incentive compensation that links pay to firm performance and aligns the incentives of managers with those of shareholders.
| Published in | European Business & Management (Volume 6, Issue 6) |
| DOI | 10.11648/j.ebm.20200606.12 |
| Page(s) | 136-142 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2020. Published by Science Publishing Group |
CEOs Power, CEOs Compensation, Profitability, Firms, Nairobi Securities Exchange
| [1] | Fong, E. A. (2004). ‘Chief Executive Officer (CEO) Responses to CEO Compensatin Equity.’ University of Florida. |
| [2] | Steers, R. M, Porter, L. W. and Bigley G. A, (1996). Motivation and Leadership at work, 6th Ed., McGraw Hill. |
| [3] | Pfeffer, S. and Weintrop, J. (1992). Corporate Performance and CEO turnover: A comparison of performance indicators, Administrative Science Quarterly, Vol. 36. |
| [4] | Izan, H. Y., Sidhu, B. and Taylor, S. (1998). Does CEO pay reflect performance? Corporate Governance: an International Review, 6, 39-47. |
| [5] | Kimberly, J. R. (1976), Organizational size and structuralist perspective: A review, critigue and proposal, Administrative science quarterly, 21 (4) 571-597. |
| [6] | Finkelstein, S. and Hambrick D. C., (1989). Chief Executive Compensation: a study of the intersection of markets and political processes, Strategic Management Journal Vol. 10. |
| [7] | Harrison, J. R., David, L. T. and Sal K. (1998). The changing of the Guard: Turnover and Structural Change in teh Top-Management position. Adminstrative Sceince Quarterly 33: 211-232. |
| [8] | Elhagrasey, G., Harrison, R. and Buchholz R. (1999). Power and Pay. The politics of CEO compensation, Journal of Management and Governance. Vol. 3: 213-251 |
| [9] | Allen, M. P. (1981). Power and Privilege in the Large Corporation. Corporate Control and Managerial Compensation. American Journal of Sociology 86: 1112-1123. |
| [10] | Parthasarathy, A., Menon, K. and Bhattacherjee, D. (2006), Executive Compensation, Firm Performance and Governance, Economic and Political Weekly. |
| [11] | Bebchuk, L. A., and Fried, J. M, Walker, D. (2002). Managerial power and rent extraction in the design of executive compensation, University of Chicago Law Review, Vol 69, pp 751-846. |
| [12] | Bertrand, M. and Sendhil, M. (2003). Enjoying the quiet life? Managerial behavior following anti-takeover legislation, Journal of political economy, Vol 11, pp 1043-1075. |
| [13] | Sigler, K. J. (2011). CEO Compensation and Company Performance. Business and Economics Journal, Volume 31. |
| [14] | Tarus, K. E., Basweti, A. K. and Nyaoga, B. R. (2014). The Relationship between Executive Compensation and Financial Performance of Insurance companies in Kenya, Research Journal on Finance and Accounting, Vol. 5 (1), 113-122. |
| [15] | Boyd, B. K. (1994). ‘Board Control and CEO Compensation.’ Strategic Management Journal, Vol. 15, No. 5. Pp. 335-344. |
| [16] | Reed, R., Lemak, D. J. and Mero, N. P. (2000). Total quality management and sustainable competitive advantage. Journal of Quality Management, Vol. 5 No. 1, 5-26. |
| [17] | Guest, M. P. (2009). Board Structure and Executive Pay: evidence from the UK. Cambridge Journal of Economics, vol 31. |
| [18] | Core, J. E,, Robert, W. H. and David E. L. (1999). Corporate Governance, Chief Executive Compensation and Firm Performance. Journal of Financial Economics, 51: 3, pp. 371-406. |
| [19] | Deckop, J. R. (1988). ‘Determinants of Chief Executive Officer Compensation.’ Industrial and Labor Relations Review, Vol. 41, pp. 215-226. |
| [20] | Jensen, M. C. (1986). Agency Costs of Free Cash flow, Corporate Finance, and takeovers. American Economic Review, Vol. 76, pp. 223-229. |
| [21] | Kubo, K. (2001). The Determinants of Executive Compensation in Japan and the UK. Working paper series, No. 2001-2, Institute of Economic Research Hitotsubashi University. |
| [22] | Shah, S. Z., Javed, T. and Abbas M. (2009). Determinants of CEO compensation, Emperical Evidence from Pakistani Listed Companies, International Research Journal of Finance and Economics. |
| [23] | Sapp, S. G. (2007). The impact of Corporate Governance on Executive Compensation. |
| [24] | Agrawal, A. and Charles, R. K. (1998). Managerial Compensation and the treat of Takeover. Journal of Financial Economics, 47: 2, pp. 219-39. |
| [25] | McGuire J. W., Chiu J. S., Elbing A. O. (1962). ‘Executive Incomes, Sales and Profits.’ The American Economic Review, Vol. 52, pp. 753-761. |
| [26] | Chalmers, K., Koh, P. S., Stapledon, G. (2006). ‘The determinants of CEO compensation. Rent extraction or labor demand?’ The British Accounting Review 38, 259-275. |
| [27] | Collingwood, H. (2009). DO CEO’S matter? June 25009 Atlantic Magazine, on line Edition. |
| [28] | Hambrick, D. C., and Mason, P. (1984). Upper echelons: The organization as a reflection of its top managers, Academy of Management Journal, 14: 401-418. |
| [29] | Holmstom, B. and Kaplan S. (2003). The state of US Corporate governance: What’s right and what’s wrong? Journal of Applied Corporate Finance, Spring: 8-20. |
| [30] | Holmstom, B. and Kaplan S. (2001). Corporate governance and merger activity in the United States: making sense of the 1980’s and 1990’s, Journal of Economic perspective, Vol 15, pp 121-144. |
| [31] | Shleifer, A. and Vishny, R. (1997). Management Entrenchment: The case of Manager Specific Investments, Journal of Financial Economics, Vol 25–123–139. McGRAW-Hill. |
| [32] | Catlin, G. E. G., (1962). Systemic Politics, University of Toronto, Toronto. |
| [33] | Frydman C. and Jenter D. (2015). CEO Compensation, working paper. Stanford University. |
| [34] | Healy, P. (1985). The effect of bonus schemes on accounting decisions, Jounal of Accounting and Economics, Vol. 7, pp. 85-107. |
| [35] | Cyert, R., Sok-Hyon, K. and Praveen, K. (2002). Corporate Governance, Take-overs, and Top-Management Compensation: Theory and Evidence. Management Science. 48: 4, pp. 453-69. |
| [36] | Hubbard, G. (2009). Measuring Organizational Performance: Beyond Triple Bottom Line. Business Strategy and the Environment. Vol. 18 pp. 177-191. |
| [37] | Reich R. (1998). The new meaning of corporate social responsibility, Asian Business and Management, Vol 4: pg. 95-115. |
| [38] | Khanna, V. (2016). Determinants of CEO Compensation, International Journal of Management Excellence, 6 (2). |
| [39] | Leonard, J. (1990). Executive pay and Firm Performance, Industrial and labour relations review, Vo. 43, pp 13-29. |
| [40] | Bebchuk, L. A., and Fried, J. M. (2004). Executive Compensation as an Agency Problem, Journal of Economic Perspective, Vol. 17. |
| [41] | Kerr, J. and Bettis, R. A. (1987). Boards of Directors, top management compensation and shareholder returns, Academy of Management Journal, Vol 30: 645-664. |
| [42] | Himmerlberg, C. P. and Hubbard, R. G. (2000). Incentive pay and the market for CEO’s. An analysis of pay-for performance sensitivity, Working paper, Columbia university. |
| [43] | Cooper, D. R. and Schindler, P. S. (2008). Business Research Methods, 10th Edition. |
| [44] | Lambert, R. A., Larcker, D. F., and Weigelt, K. (1991). ‘How Sensitive is Executive Compensation to Organizational Size?’ Strategic Management Journal, Vol. 12, pp. 395-402. |
| [45] | Ongore, V. (2008). The Effect of Ownership Structure Board Effectiveness and Managerial Discretion on Performance of listed Companies in Kenya, unpublished PhD Thesis, UoN. |
| [46] | Chung, Y. (2010. CEO Ability, Pay, and Firm Performance. JEL Classification: G34, J24, J33. |
| [47] | Jones, D. C., Kato, T. (1996). ‘The determinants of chief executive compensation in transitional economies,’ Evidence from Bulgaria.’ Labor Economics. 3, 319-336. |
| [48] | Aduda, J. (2011). The Relationship between Executive Compensation and Firm Performance in the Kenyan Banking Sector, Journal of Accounting and Taxation, Vol. 3 (6), 130-139. |
APA Style
Omamo Anne, Peter K’obonyo, Florence Muind Florence Muind. (2020). Influence of CEOs Power on Their Compensation. European Business & Management, 6(6), 136-142. https://doi.org/10.11648/j.ebm.20200606.12
ACS Style
Omamo Anne; Peter K’obonyo; Florence Muind Florence Muind. Influence of CEOs Power on Their Compensation. Eur. Bus. Manag. 2020, 6(6), 136-142. doi: 10.11648/j.ebm.20200606.12
AMA Style
Omamo Anne, Peter K’obonyo, Florence Muind Florence Muind. Influence of CEOs Power on Their Compensation. Eur Bus Manag. 2020;6(6):136-142. doi: 10.11648/j.ebm.20200606.12
Share This Article
Twitter
Linked In
Facebook
Copy
Download@article{10.11648/j.ebm.20200606.12,
author = {Omamo Anne and Peter K’obonyo and Florence Muind Florence Muind},
title = {Influence of CEOs Power on Their Compensation},
journal = {European Business & Management},
volume = {6},
number = {6},
pages = {136-142},
doi = {10.11648/j.ebm.20200606.12},
url = {https://doi.org/10.11648/j.ebm.20200606.12},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ebm.20200606.12},
abstract = {There is growing concern that over recent decades CEOs tend to earn overwhelmingly more than the average worker. This throws the researchers to question the economic benefit of paying CEOs huge amount of money while we have discouraged workers who may become less productive and therefore lowering the firm profitability. Researchers have taken positions on both sides of the debate over whether the level of CEO’s pay is economically justified or is the result of managerial power. This study sought to establish the extent of power that CEO’s possess among Kenya firms listed at the Nairobi Securities Exchange. CEO’s power was measured in terms of structural power, ownership power, CEO tenure and Board composition. The study used secondary data. Data was collected from 60 firms listed at the NSE. Using a cross sectional design, a regression model was fitted to show the relationship between CEO’s power and CEO’s compensation. Descriptive and inferential results were obtained. The findings revealed that in the Kenyan context CEO’s power does not significantly influence CEO’s compensation. CEO’s pay is market-determined and reflects the bidding by firms for scarce executive talent. The increase in CEO’s pay is due to the rise in incentive compensation that links pay to firm performance and aligns the incentives of managers with those of shareholders.},
year = {2020}
}
TY - JOUR T1 - Influence of CEOs Power on Their Compensation AU - Omamo Anne AU - Peter K’obonyo AU - Florence Muind Florence Muind Y1 - 2020/11/30 PY - 2020 N1 - https://doi.org/10.11648/j.ebm.20200606.12 DO - 10.11648/j.ebm.20200606.12 T2 - European Business & Management JF - European Business & Management JO - European Business & Management SP - 136 EP - 142 PB - Science Publishing Group SN - 2575-5811 UR - https://doi.org/10.11648/j.ebm.20200606.12 AB - There is growing concern that over recent decades CEOs tend to earn overwhelmingly more than the average worker. This throws the researchers to question the economic benefit of paying CEOs huge amount of money while we have discouraged workers who may become less productive and therefore lowering the firm profitability. Researchers have taken positions on both sides of the debate over whether the level of CEO’s pay is economically justified or is the result of managerial power. This study sought to establish the extent of power that CEO’s possess among Kenya firms listed at the Nairobi Securities Exchange. CEO’s power was measured in terms of structural power, ownership power, CEO tenure and Board composition. The study used secondary data. Data was collected from 60 firms listed at the NSE. Using a cross sectional design, a regression model was fitted to show the relationship between CEO’s power and CEO’s compensation. Descriptive and inferential results were obtained. The findings revealed that in the Kenyan context CEO’s power does not significantly influence CEO’s compensation. CEO’s pay is market-determined and reflects the bidding by firms for scarce executive talent. The increase in CEO’s pay is due to the rise in incentive compensation that links pay to firm performance and aligns the incentives of managers with those of shareholders. VL - 6 IS - 6 ER -
Information
Email: