CEO Power, CEO Tenure and Executive Compensation Gap: A Dynamic Model Based on Non-linear Programming Method

Abstract

Based on the traditional tournament model, CEO power and CEO tenure are simultaneously introduced to refine the extant tournament model by drawing on insights from behavioral perspective. The new model proposes expected utility maximization function of firm performance and adopts Non-linear Programming method to analyze the relationship among CEO power, CEO tenure and ECG. The results show that CEO tenure can negatively moderate the positive effect of CEO power on ECG, and more importantly, out of firm-friendly motives, new CEO intends to choose a larger ECG than senior CEO given the same arrangement of CEO power.