The authors would like to acknowledge the helpful comments of Joe Astrachan, Beth Fitzgerald, and two anonymous reviewers on earlier drafts. A version of the paper was presented at the Academy of Management Toronto 2000 National Meetings.
Social Embeddedness, Overt and Covert Power, and Their Effects on CEO Pay: An Empirical Examination Among Family Businesses in India
Article first published online: 20 APR 2004
Family Business Review
Volume 13, Issue 4, pages 293–312, December 2000
How to Cite
Veliyath, R. and Ramaswamy, K. (2000), Social Embeddedness, Overt and Covert Power, and Their Effects on CEO Pay: An Empirical Examination Among Family Businesses in India. Family Business Review, 13: 293–312. doi: 10.1111/j.1741-6248.2000.00293.x
- Issue published online: 20 APR 2004
- Article first published online: 20 APR 2004
The literature on CEO compensation reflects two common biases: (a) the dominant use of the agency theory perspective and (b) the almost exclusive use of U.S. and U.K samples. Agency theory views compensation as a consequence of the incentive contracts and the processes of corporate governance. However, little is known about the determinants of CEO compensation in developing countries. Considering that foreign direct investment of U.S. multinational enterprises increased 10-fold over the past decade, mostly in developing economies, there is a great need to understand the dynamics of pay setting in these foreign contexts. Overall, there is an imperative need to explore alternative theoretical perspectives as well as investigate nontraditional contexts to broaden existing theoretical premises.
In an attempt to address this need, this study investigates the CEO's social embeddedness and overt and covert power as determinants of CEO pay in a sample of Indian family-controlled firms. Using a time-series, cross-sectional regression analysis, we find family shareholding and the percentage of inside directors on the board (identified as bases of overt power for the CEO) to be the predominant influences on CEO pay. By contrast, some of the identified bases of covert power, such as the CEO's tenure, age, education, and firm diversification, are not significant. Surprisingly, controls for firm size and performance also exhibit no influence on CEO pay. These findings offer a useful point of reference against which results from western studies can be compared to formulate more holistic theories of CEO pay.