Abstract
This article examines whether the effect of hierarchical pay structures on firm value is different between the firms in which the CEO is not the highest paid member of the top management team and those in which the CEO receives the highest pay. We find that the difference in pay between CEO and VPs benefits firm value only when CEO is the highest paid member of the top management team. In firms where the CEO does not receive the highest pay, pay gaps have a negative impact on firm value. The article also finds that financial distress, family ownership, firm size and R&D intensity increase the likelihood of CEO not being the highest paid manager, whereas CEO entrenchment and CEO power along with dividend payout decrease this likelihood.
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