The tide that lifts all boats? Acquisitions and CEO-TMT pay disparity in the Netherlands

P. Rao Sahib, Gerwin van der Laan, H. van Ees

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Purpose
The purpose of this paper is to examine how firm growth, and its decomposition into acquisitive and organic growth, can serve as an antecedent to the disparity in pay between the CEO and other top management team (TMT) members.

Design/methodology/approach
Drawing on tournament theory, the authors argue that acquisitive and organic growth strategies have different effects on CEO-TMT pay disparity.

Findings
The authors find that acquisitive growth, measured through the number and size of acquisitions, increases CEO-TMT pay disparity while organic growth has no effect on CEO-TMT pay disparity.

Practical implications
The findings, based in the context of the Netherlands, imply that boards in their monitoring activity may need to take into account the potential incentive effects of acquisitive activity as CEOs may have a greater motivation to engage in acquisitions than their fellow TMT members.

Originality/value
This paper contributes to the literature on relative compensation and incentives and the literature on managerial compensation and firm strategy. To investigate the role of firm growth in increasing CEO-TMT pay disparity, the authors adopt a fine-grained approach along two dimensions. First, the authors disaggregate firm growth into organic and acquisition driven firm growth. Second, the authors disaggregate pay disparity in these components.
Original languageEnglish
Pages (from-to)2038-2059
JournalManagement Decision
Volume56
Issue number9
DOIs
Publication statusPublished - 2018

Fingerprint

Chief executive officer
Top management teams
The Netherlands
Firm growth
Managerial compensation
Decomposition
Tournament theory
Monitoring
Firm strategy
Incentives
Incentive effect
Growth strategy
Design methodology

Keywords

  • organic growth
  • acquisitions
  • executive compensation
  • CEO-TMT pay disparity

Cite this

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title = "The tide that lifts all boats? Acquisitions and CEO-TMT pay disparity in the Netherlands",
abstract = "PurposeThe purpose of this paper is to examine how firm growth, and its decomposition into acquisitive and organic growth, can serve as an antecedent to the disparity in pay between the CEO and other top management team (TMT) members.Design/methodology/approachDrawing on tournament theory, the authors argue that acquisitive and organic growth strategies have different effects on CEO-TMT pay disparity.FindingsThe authors find that acquisitive growth, measured through the number and size of acquisitions, increases CEO-TMT pay disparity while organic growth has no effect on CEO-TMT pay disparity.Practical implicationsThe findings, based in the context of the Netherlands, imply that boards in their monitoring activity may need to take into account the potential incentive effects of acquisitive activity as CEOs may have a greater motivation to engage in acquisitions than their fellow TMT members.Originality/valueThis paper contributes to the literature on relative compensation and incentives and the literature on managerial compensation and firm strategy. To investigate the role of firm growth in increasing CEO-TMT pay disparity, the authors adopt a fine-grained approach along two dimensions. First, the authors disaggregate firm growth into organic and acquisition driven firm growth. Second, the authors disaggregate pay disparity in these components.",
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The tide that lifts all boats? Acquisitions and CEO-TMT pay disparity in the Netherlands. / Rao Sahib, P.; van der Laan, Gerwin; van Ees, H.

In: Management Decision, Vol. 56, No. 9, 2018, p. 2038-2059.

Research output: Contribution to journalArticleScientificpeer-review

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T1 - The tide that lifts all boats? Acquisitions and CEO-TMT pay disparity in the Netherlands

AU - Rao Sahib, P.

AU - van der Laan, Gerwin

AU - van Ees, H.

PY - 2018

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N2 - PurposeThe purpose of this paper is to examine how firm growth, and its decomposition into acquisitive and organic growth, can serve as an antecedent to the disparity in pay between the CEO and other top management team (TMT) members.Design/methodology/approachDrawing on tournament theory, the authors argue that acquisitive and organic growth strategies have different effects on CEO-TMT pay disparity.FindingsThe authors find that acquisitive growth, measured through the number and size of acquisitions, increases CEO-TMT pay disparity while organic growth has no effect on CEO-TMT pay disparity.Practical implicationsThe findings, based in the context of the Netherlands, imply that boards in their monitoring activity may need to take into account the potential incentive effects of acquisitive activity as CEOs may have a greater motivation to engage in acquisitions than their fellow TMT members.Originality/valueThis paper contributes to the literature on relative compensation and incentives and the literature on managerial compensation and firm strategy. To investigate the role of firm growth in increasing CEO-TMT pay disparity, the authors adopt a fine-grained approach along two dimensions. First, the authors disaggregate firm growth into organic and acquisition driven firm growth. Second, the authors disaggregate pay disparity in these components.

AB - PurposeThe purpose of this paper is to examine how firm growth, and its decomposition into acquisitive and organic growth, can serve as an antecedent to the disparity in pay between the CEO and other top management team (TMT) members.Design/methodology/approachDrawing on tournament theory, the authors argue that acquisitive and organic growth strategies have different effects on CEO-TMT pay disparity.FindingsThe authors find that acquisitive growth, measured through the number and size of acquisitions, increases CEO-TMT pay disparity while organic growth has no effect on CEO-TMT pay disparity.Practical implicationsThe findings, based in the context of the Netherlands, imply that boards in their monitoring activity may need to take into account the potential incentive effects of acquisitive activity as CEOs may have a greater motivation to engage in acquisitions than their fellow TMT members.Originality/valueThis paper contributes to the literature on relative compensation and incentives and the literature on managerial compensation and firm strategy. To investigate the role of firm growth in increasing CEO-TMT pay disparity, the authors adopt a fine-grained approach along two dimensions. First, the authors disaggregate firm growth into organic and acquisition driven firm growth. Second, the authors disaggregate pay disparity in these components.

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