The Open Ethics Journal

ISSN: 1874-7612


[DOI: 10.2174/1874761200903010042]
Why is Industry Related to CEO Compensation?: A Managerial Discretion Explanation
Sydney Finkelstein Pp 42-56

Although research on CEO compensation is voluminous, only limited attention has been paid to the role of industry. In this paper we develop an industry-level explanatory theory based on the concept of managerial discretion, and test it using a multi-level structural equation modeling approach at the industry level. In contrast to previous work, this theory offers an explanation of why, and how, industry is related to CEO compensation. In a sample of 933 firms in 109
3-digit SIC industries, we find that the level of industry discretion is significantly related to both the level of CEO compensation, and the proportion of performance-contingent CEO compensation. The implications of these findings for industry-level research in general, and research on CEO compensation in particular, are discussed.