Organizational Size and CEO Compensation: The Moderating Effect of Diversification in Downscoping Organizations

The purpose of this study is to extend research devoted to the areas of organizational size and chief executive (CEO) compensation. The thrust of this investigation holds that diversification moderates the relationship between organizational size and CEO compensation. While research has consistently...

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Bibliographic Details
Published in:Journal of managerial issues 2007-07, Vol.19 (2), p.233-252
Main Authors: Geiger, Scott W., Cashen, Luke H.
Format: Article
Language:English
Subjects:
Business management
Business structures
Cash
Chief executive officers
Compensation and benefits
Compensation plans
Corporate strategies
Corporations - Size
Diversification
Divestiture
Divestments
Effects
Entropy
Executive compensation
Executives
Human capital
Information processing
Investment strategies
Size of enterprise
Stockholders
Strategic management
Studies
Versification
Wages & salaries
Wages and salaries - Executives
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Summary:The purpose of this study is to extend research devoted to the areas of organizational size and chief executive (CEO) compensation. The thrust of this investigation holds that diversification moderates the relationship between organizational size and CEO compensation. While research has consistently found a positive relationship between firm size and compensation, we utilize information-processing theory to more fully understand the relationship between size and pay. Information-processing theory suggests that compensation is based on the information processing required by CEOs. It is argued in this study that outcomes associated with downscoping, such as greater R&D or greater relatedness among business units, lead to greater information processing. As such, it is suggested that downscoping leads to increases in cash and total CEO compensation even as firms decrease size. Analysis of 60 downscoping firms supports these arguments.
ISSN:1045-3695
2328-7470