Explaining Executive Pay : The roles of managerial power and complexity

The pay of corporate leaders has escalated in the last few decades. At the same time the number of research papers on this issue has soared. Despite an impressive research volume, however, many questions concerning executive compensation remain unsolved. The author shows that both firm complexity and managerial power are associated with higher pay levels. This suggests that top managers are paid for the complexity of their job and that more powerful top managers receive pay in excess of the level that would be optimal for shareholders.