Reappraising the Problem of CEO Compensation: Modern and Old Theoretical Perspectives

Abstract

CEO compensation is a controversial issue. In recent decades, the mainstream theory of corporate governance has failed to produce a convincing explanation of the factors that shape the CEO compensation process, which, according to managerial power theory, is largely determined by the CEO’s discretionary power. These problems are increasing in the era of corporate social responsibility. This article’s objective is to show that we can better understand the problem of CEO compensation by reconsidering the various contributions of older research that focused on uncertainty and entrepreneurial action on the one hand and on industrial sabotage and reasonable values on the other. This objective is a prerequisite to rethinking CEO compensation in relation to the challenges of modern production, to the necessary development of an industrial democracy in our market societies, and to constructing a solid theoretical basis from which to reconsider CEO compensation in relation to the true mission of CEOs and to a normative vision for reform. Thus, this article provides theoretical and conceptual bases for a renewed academic debate that will allow for explanatory progress regarding the understanding of the place that the issue of CEO compensation holds in the emergence of a more just version of capitalism.