Does Firm Strategy Explain the Growing Gap between CEO and VP Pay?

In recent years, the gap between the compensation of CEOs and their vice presidents (VPs) has been increasing, especially equity compensation (i.e., stock and stock options). Scholars have proposed several explanations. First, the pay differential may relate to the varying risks those executives face in managing their firm. Second, it may be the result of tournament incentives: The senior executive with the highest relative output will typically win the tournament, get promoted to the rank of CEO, and receive the promotion prize. Third, a large pay gap could simply reflect inadequate internal governance of the firm, which will benefit the … Read more