CEO rewards: Examining the pay-for-performance link in nonprofit and for-profit organizations

• Main Author: Klein, Felice Beth
• Format: Dissertation
• Language: English
• Published: ProQuest Dissertations & Theses 01.01.2012
• Subjects: Agency theory; Executive compensation; Females; Labor economics; Labor relations; Labor unions; Management; Nonprofit organizations; Organizational behavior; Pay for performance; Studies; Union leadership; Women
• ISBN: 1267716622; 9781267716620

Significant attention has been paid to executive pay. In over a thousand studies published on the topic of executive pay (Gomez-Mejia, Berrone, and Franco-Santos, 2010), most of the research revolves around answering one question: are executives rewarded for the performance of their organization? This literature, which is primarily based on agency theory, states that there is a separation of ownership and control in organizations, and because executives’ interests are likely to diverge from owners’ interests, executives may pursue their own interests over the interests of owners. Agency theory proposes that pay-for-performance systems are a key mechanism organizations can use to reduce agency costs (Jensen and Meckling, 1976). Therefore, under agency theory, an executive’s pay is expected to vary with the performance of the organization he or she leads. Yet, although there is a substantial amount of research that investigates pay-for-performance in for-profit firms, the results are generally mixed. Additionally, very few studies have addressed the pay incentives of nonprofit leaders. Therefore, we are left without a clear understanding of how organizations are compensating their top executives and whether agency theory offers the best explanation of executive pay. My three-paper dissertation seeks to provide a better account of how organizations in different sectors use pay-for-performance systems to reward their top executives and why organizations across sectors may compensate their CEOs differently. More specifically, I investigate the pay-performance link in both for-profit firms and nonprofit organizations, which includes “charitable and religious” organizations and labor unions. In the first chapter of my dissertation, I examine whether the strength of the relationship between executive pay and organizational performance increases with performance level, and how this relationship compares in the for-profit and nonprofit sectors and between female and male CEOs. In my second dissertation chapter, I study whether nonprofit CEOs are paid based on organizational performance and what organizational factors affect the pay-performance relationship in charitable nonprofits. Last, my third dissertation chapter focuses on the pay of union leaders by examining the extent to which two commonly used compensation theories, that is, agency theory and tournament theory, help explain the pay of union presidents.