Abstract

This paper provides empirical evidence about the determinants of the level of managerial compensation and of the structure of compensation within the management hierarchy. We establish the hypotheses relating the level of managerial pay and pay differentials between organizational levels to individual and firm characteristics suggested by the agency model and the tournament theory. Management hierarchy is defined in terms of position titles and the amount of compensation. The determinants emphasized here include the managerial position in the management hierarchy, ownership concentration of the firm, business risks, firm size, profitability, firm age and so on. Hypotheses are tested cross-sectionally using the data of 737 managers in 171 Taiwan's listed companies. Empirical results show that most of the predictions emerged in the theories of agency and tournaments gain support in the data, particularly when the management hierarchy is defined as the amount of compensation.