Mind the Gap : What Really Determines Executive Pay Dispersion

While previous research has focused on the outcomes of executive pay dispersion, relatively little is known about its the determinants. This study aims to explore some key factors at the industry, firm, and CEO levels that determine executive pays dispersion within top executive teams. Using a sample of 292 U.S. firms in the manufacturing industry, a panel data regression analysis was conducted to identify the explanatory factors in the executive team’s pay dispersion. Results show that executive pay dispersion is the outcome of both organizational adaptations to the industry conditions and internal power dynamics. Specifically, firms are likely to have a high level of dispersion among executives when they are operated in munificent industries and managed by powerful CEOs with longer tenure and duality. This paper provides theoretical contribution and practical implications for organizations regarding how to create an optimal level of pay dispersion between executives.