The configurational effects of board monitoring and the institutional environment on CEO compensation: a country-level fuzzy-set analysis

Krista B. Lewellyn, Maureen Isobel Muller-Kahle

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This study examines the causal complexity of how the effectiveness of board monitoring influences CEO compensation around the world. Previous research drawing from the managerial power theory and ‘increased career risks’ perspective offer alternative arguments for how low and high levels of effective monitoring by boards of directors influence CEO compensation. Adopting a configurational approach using fuzzy-set qualitative comparative analysis, we explore the idea that there are multiple causal paths leading to high levels of CEO compensation, such that theoretical logic from both theories may be relevant contingent upon the institutional environment in which the relationship is embedded. Our findings in a sample of 38 countries suggest that high CEO compensation is an outcome of both the presence and absence of effective board monitoring depending upon how it combines with minority investor protections and the cultural dimensions of power distance, uncertainty avoidance, and individualism, as well as the overall stock market value. Specifically, in countries with high levels of effective board monitoring, high CEO compensation will be more likely when the country’s culture is high in uncertainty avoidance, low in power distance and when there are strong protections for minority investors. Whereas in countries with low levels of effective board monitoring, high CEO compensation will be more likely when power distance is high and uncertainty avoidance is low and when there are weak protections for minority investors. Our country-level study highlights the theoretical strengths of employing a configurational approach to explore the complex interrelationships of governance mechanisms and the contexts in which they manifest.

Original languageEnglish (US)
Pages (from-to)729-757
Number of pages29
JournalJournal of Management and Governance
Volume20
Issue number4
DOIs
StatePublished - Dec 1 2016

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CEO compensation
Monitoring
Fuzzy sets
Institutional environment
Minorities
Power distance
Uncertainty avoidance
Investors
Configurational approach
Qualitative comparative analysis
Market value
Interrelationship
Investor protection
Cultural dimensions
Stock market
Managerial power
Board of directors
Logic
Governance mechanisms
Individualism

All Science Journal Classification (ASJC) codes

  • Business and International Management

Cite this

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