Division Director Versus CEO Compensation: New Insights Into the Determinants of Executive Pay
Juan Santaló, Carl Joachim Kock
Journal of Management · 2009 · Volume 35 · Issue 4
Abstract
The authors highlight the importance of firm structure for the optimal compensation contracts of upper-management positions. Making use of task similarity between CEOs of undiversified firms and division directors within larger corporations, the authors analyze trade-offs between monitoring and incentive pay at below-CEO levels. Because division directors are subject to an additional layer of monitoring by upper management, they should receive less incentive pay and lower compensation than do CEOs of undiversified firms, whereas added complexity because of higher levels of diversification will predictably alter these relationships. Matched pair regressions on a unique data set support the authors' hypotheses.
Keywords
monitoring, incentive pay, compensation structure, strategic business unit managers
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