Shows Positive Influence of Higher CEO Pay on Firm’s Competitiveness
Research indicating a positive relationship between higher-paid CEOs and a company’s competitiveness earned a paper co-authored by Dr. Evan Offstein, an assistant professor of management in Frostburg State University’s College of Business, recognition as Best Paper by the international journal “Group & Organization Management,” which focuses on organizational behavior, organization theory, business strategy and human resources.
The paper, “The Impact of the CEO Pay Gap on Firm Competitive Behavior,” investigated how pay differences between a CEO and the rest of the members of the top management team influence a firm's competitive behavior, reflected in the observable and purposeful competitive moves launched by the firm. The authors – Offstein collaborated with Dr. Devi R. Gnyawali of Virginia Polytechnic Institute and State University’s Pamplin College of Business and Dr. Rebecca S. Lau, a professor at the City University of Hong Kong – used data from the U.S. pharmaceutical industry, finding a positive relationship between the CEO pay gap and the volume and complexity of firm competitive behavior.
“In essence, what we found was that higher paid CEOs appear to drive a more competitive firm. More to the point, the greater the gap in pay between the CEO and the rest of the top management team, the more competitively active and aggressive the firm is,” Offstein said. The paper discusses both theoretical and managerial implications of these findings as they relate to important topics such as competitive strategy, corporate governance, and executive compensation.
“Thus, while the public along with policy makers want the government to control and limit pay, we contend from this paper that chief executive pay should maybe even be higher compared with other members of the top management team,” Offstein said. “High pay prizes create tournaments where the winner wins CEO pay. That drives incredible effort and some risk taking.”
Offstein is a former military intelligence officer and a graduate of West Point, and the author of “Stand Your Ground: Building Honorable Leaders the West Point Way,”(Praeger, 2006) which has been used by Virginia Tech for their Corps of Cadets leadership curriculum and by the Securities and Exchange Commission. His career encompasses military, profit and nonprofit organizations and academia.
Gnyawali's research seeks to understand the role of intangible resources such as knowledge, human capital, social capital, and relational resources (learning and knowledge through alliances and networks) on the firm’s strategic choice and competitive advantage.
Lau’s research interests include conflict management, organizational justice, top management teams, and research methods.
For more information, contact Offstein at email@example.com, or to learn more about FSU’s College of Business, visit www.frostburg.edu/colleges/cob. For more information on Virginia Tech’s Pamplin College of Business, visit www.pamplin.vt.edu.
Situated in the mountains of Allegany County, Frostburg State University is one of the 13 institutions of the University System of Maryland. FSU is a comprehensive, residential regional university and serves as an educational and cultural center for Western Maryland.