Managerial Power and Compensation

Abstract

According to the widely used Managerial Power Model, a higher hierarchical position with associated higher power leads to higher compensation. In contrast, the Compensating Wage Differentials Model argues that there is a non-positive relationship between positional power and total compensation. Both power and income yield utility and in equilibrium managers are prepared to trade-off the two elements. The two opposing propositions are tested using a large survey data set from Switzerland. The results suggest that power positions do not yield higher compensation. Rather, there is a non-positive relationship between power position and compensation, if one takes into account all relevant factors influencing total compensation.