TITLE

CEO Compensation as Tournament and Social Comparison: A Tale of Two Theories

AUTHOR(S)
O'Reilly III, Charles A.; Main, Brian G.; Crystal, Graef S.
PUB. DATE
June 1988
SOURCE
Administrative Science Quarterly;Jun88, Vol. 33 Issue 2, p257
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This study examined economic and psychological factors that may influence the setting of CEO compensation levels and tested both a tournament model and a social comparison model. Using data from 105 Fortune 500 firms, conventional economic determinants such as size and profitability were found to be only weakly related to CEO compensation. A test of a tournament model examined the difference in compensation between the top executive and those in the next hierarchical level. Controlling for other potential economic determinants, no support was found for this theory. Consistent with social comparison theory, however, strong associations were found between CEO compensation and the compensation level of outside members of the board of directors, especially those who serve on the compensation committee.
ACCESSION #
4014001

 

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