Abstract
The central hypothesis of the managerial power approach (MPA) states that power is the main driver of executive compensation. The positive impact of power on compensation is allegedly demonstrated by a large number of empirical studies. We argue that the hypothesis of a positive impact of power on pay is not falsifiable empirically. The MPA is thus not testable. Empirical studies in this vein can only be interpreted as validation procedures for the empirical power measures employed. We suggest a new theoretical framework for research on the power-compensation relationship. This framework can be used to identify valid power measures empirically. The arguments presented in our paper allow for a reassessment of the role of power in the corporate governance debate.
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