The influence of organizational task environment and firm size on top-executive compensation contracts

This paper offers a fresh perspective on executive compensation by offering a new paradigm for choosing executive compensation structure based on environmental factors and firm size. This new perspective uses agency theory as a theoretical foundation. The availability of information, primarily information related to the agent, has typically been of utmost concern in the compensation selection process. However, a predominant focus on cognitive or behavioral information of the agent neglects the relative importance and impact of environmental forces in this process. This study evaluates the composition of the compensation contract using fluctuating environmental dimensions as the primary determinant. Specifically, we examine environmental munificence, dynamism, and complexity and the influence of varying levels of each of these variables and their interaction on the optimal choice of compensation contract utilized for both large firms and small and medium-sized enterprises (SMEs). This externally focused vi...