The Relationship Between CEO Power and Compensation - An Empirical Analysis of Norwegian Listed Firms
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By using general estimation equations (GEE) on a sample of the biggest firms on Oslo Stock Exchange, the managerial power hypothesis is tested in a Norwegian context. The sample spans over 5 years and consist of 112 complete observations.One of the measures of managerial power is using social network theory where the extent of the CEO's social network is represented by measures of the degree of connections through board positions. These measures are called centrality measures. The focus of the thesis is to evaluate whether there is a significant positive relationship between centrality and executive compensation, and whether there is a significant relationship between managerial power and executive compensation.Only one of the centrality measures is found to be significantly, but the variable is negatively correlated with pay, and there is a concern that the variable capture a different effect than it was supposed to. Hence, there is not enough evidence to support that there is a positive relationship between connectedness and executive pay. Furthermore, some of proxies for managerial power were found to be significant, while others were not. Hence, the conclusion is that the influence of managerial power may be important and should be taken into account when explaining executive pay and designing compensation packages. However, the theory should be used as a supplement to existing models like agency theory, as the managerial power hypothesis can t fully explain all aspects of executive compensation.The thesis acts as a platform for further research on managerial power as well as social network analysis. The results in this thesis can t be generalized outside the Norwegian context due to limited sample.