A study of the relationship of chief executive compensation with chief executive directorate networks and the tenure of the executive

This study examined the proposition that chief executive officer (CEO) compensation is a manifestation of CEO power. The premise is that control over CEO compensation has shifted from traditional stockholders and board members to chief executives. The first hypothesis examined whether CEO compensation increases as the number of other chief executives on the board increases. With CEOs sitting on each others' corporate boards, the CEOs would comprise an "old boys" power network that controls their own compensation. The second premise was that CEOs recruited from outside the organization were in a stronger position of power than executives promoted from within the organization. Consequently, the second hypothesis examined whether CEO compensation correlated inversely with the tenure of an executive in the firm such that those with short tenure would have higher compensation levels than those with longer tenure. There was no attempt to control other moderator variables, such as age of executive, size of firm or profit of firm.;Analysis supported the first hypothesis, but not the second. There was a statistically significant correlation between levels of chief executive compensation and numbers of other chief executives on the firm's board--the larger the number of executives, the higher the compensation. In the second hypothesis, there was insufficient evidence to show that chief executive compensation was greater for recruited executives with low tenure.;There are implications for corporate governance policy. A link is possible between compensation and executive power. The network relationships of chief executives in this study are the visible links of a small group of people who have the potential to exercise considerable political, social and economic power. Because these ties correlate to levels of executive compensation, there may be other positive and negative manifestations from these network relationships. Limitations to competition, the glass ceiling, international out-sourcing and environmental irresponsibility are some negative subjects that might warrant future investigation. On the positive side, there may be relationships between this network power and various forms of corporate strategy and performance.