Managerialist and Human Capital Explanations for Key Executive Pay Premiums: A Contingency Perspective

Abstract

Managerialism is a theory that suggests that managers extract pay premiums by gaining control over their firms' compensation processes. Human capital theory suggests instead that pay premiums reflect executives' superior managerial abilities. This study tests a contingency perspective in which the source of pay premiums depends on executives' power and firms' governance strength. Results suggest pay premiums are a consequence of human capital in some firms and managerial entrenchment in others. Several implications are offered to guide future inquiry.