The Impact of the CEO Pay Gap on Firm Competitive Behavior

Abstract

The authors investigate how pay differences between the CEO and the rest of the members of the top management team influence a firm's competitive behavior as reflected in the observable and purposeful competitive moves launched by the firm. Using data from the U.S. pharmaceutical industry, the authors found a positive relationship between the CEO pay gap and the volume and complexity dimensions of firm competitive behavior. The authors discuss both theoretical and managerial implications of these findings as they relate to important topics such as competitive strategy, corporate governance, and executive compensation.