Effect of CEO Power on Executive Pay-Performance Sensitivity: A literature Review

Abstract

In order to reconcile the conflicting conclusions of research on the manipulation effect of CEO power on executive pay-performance sensitivity (EPPS) and further promote the research progress, the method of literature review is adopted by investigating and discussing the latest studies on this topic in detail. According to the review, as a result of interdisciplinary combination and theoretical integration, CEO power theory can actually explain the reality of low and asymmetric EPPS more effectively than traditional principal-agent theory, and the research of EPPS based on CEO power perspective should become the mainstream in this topic. Review results also show that manipulation effect of CEO power on EPPS does exist across the world. However, the strength and nature of such manipulation effect have not been recognized clearly. It is the newest trend to recognize that the manipulation effect of CEO power on EPPS is a kind of “contingent effect” instead of “absolute effect”. In the future, more scholars should discuss the critical contingent variables that can affect the relationship between CEO power and EPPS in depth, such as CEO tenure.