The Configurational Effect of CEO Power and Personality on CEO Overpay

When attempting to explain why some CEOs receive much higher compensation than is objectively justifiable, scholars have largely relied on the managerial power hypothesis, which poses that excessive executive pay reflects the ability of CEOs to exercise their power over the board of directors. However, mixed empirical findings regarding the relationship between CEO power and pay call into question the validity of the managerial power hypothesis. We integrate two streams of research that recognize that power is a complex and multidimensional construct, and that CEO personality could affect their ability to leverage different dimensions of power. Using fuzzy set qualitative comparative analysis (fsQCA), we find that multiple configurations of CEO power and personality attributes lead to their overpayment. Our findings shed new light on the managerial power hypothesis assumption that having power is synonymous with being willing and able to leverage it to extract personal benefits.