Business Strategy and Top Management Compensation: The Mediating Effects of Employment Risk, Firm Performance and Size


Management and Entrepreneurship

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We compare top management compensation among prospector, defender, and analyzer strategic types, and the effects of differences in managers' employment risks, firm performance, and firm size. Prospectors performed better and they paid their top management group more than did analyzers. They were also bigger, their managers faced more employment risks, and they paid their CEOs more than did defenders or analyzers. Significant differences were found among the three strategic types in managers' employment risks, firm performance, and size. On average, the strategic types whose managers faced greater employment risks also compensated their top management group more, providing evidence of a positive relationship between risk and return at the level of strategic types. Confirming previous findings, firm size constituted the greatest influence on top management compensation.