Date of Award

Summer 1996

Document Type


Degree Name

Doctor of Philosophy (PhD)


Business Administration-Management

Committee Director

Brian K. Boyd

Committee Member

Sara Morris

Committee Member

Bruce S. Rubin

Committee Member

J. Taylor Sims


This research expands the study of determinants of CEO pay. Previous studies have found conflicting results regarding the importance of firm size and firm performance in influencing the amount of CEO compensation. Other studies are incomplete with respect to the measurement of both executive pay and its determinants. Traditional theories of executive compensation such as equity theory, expectancy theory, human capital and labor market theory provide the starting point for determinants of CEO pay. However, to more fully understand these determinants, the model includes a test of agency theory showing the relationship between board control and pay. It tests the relationship of CEO equity and pay, also based on agency theory, and by measuring firm internationalization tests complexity as a basis for CEO compensation. The study also examines the relationship between CEO pay and firm size as well as the relationship between compensation and firm performance.

This study extends theory and empirical conclusions with improvements in measurement, the addition of CEO equity and firm internationalization to the model. It also allows for normative predictions based on firm performance, as well as summary of conflicting conclusions through meta-analysis.

Measurement. Structural equation modeling improves measurement of both dependent and predictor variables. All constructs are measured using multiple indicators. One benefit of the multiple indicators is a more robust measurement of the construct of compensation. This study also conforms the reliability of a multiple indicator model of board control.

CEO equity. Previous research does not measure CEO equity ownership as a continuous variable. CEO wealth reflected by the value of CEO stock ownership is negatively related to compensation.

Performance. By dividing the sample into high and low performing groups, we can identify effective compensation practices.

Internationalization. We find that firm internationalization is positively related to CEO pay, however, the results are not significant.

Meta-analysis. This methodological technique summarizes effect sizes of the relationships between common control variables, size and performance. Consistent with traditional literature reviews, firm size has a greater influence on CEO pay than firm performance. However, when long-term incentives are included in the measure of compensation, the differences are reduced.

This study confirms the reliability and accuracy of the board control model as a predictor of CEO pay, especially for high performing organizations. By incorporating CEO factors and testing the effects of internationalization in the model, we account for additional variation in such compensation. Use of multiple indicators enhances the robustness of the model as well.


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