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Politics, markets, and CEO pay: a congruence analysis of two competing theoretical explanations of executive compensation at large firms in Finland

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  • Jordan Rosenblum

    (Åbo Akademi University)

Abstract

This article conducts a congruence analysis on the historical development of CEO pay at large firms in Finland to contribute to the debate between prominent competing theoretical perspectives on the causes of CEO pay and consequent income inequality. It examines the alignment of the empirical evidence on CEO pay in Finland with a market-based theory, which emphasizes market forces, and a politics-based theory, which emphasizes the distribution of power between labor and employers, drawing from Power Resources Theory, to see whether a particular perspective holds more explanatory power. The congruence analysis finds that the expectations of the politics-based perspective are aligned with CEO pay developments in the 1970s and 1980s, when labor was strong and CEO pay was modest, as well as the difference between CEO pay developments before the mid-1990s and afterward, when employers were strong and CEO pay grew rapidly to new heights. It also finds that the market-based perspective is helpful for explaining developments starting in the mid-1990s. The impact of the market on CEO pay is shown to be contingent on the distribution of power in society.

Suggested Citation

  • Jordan Rosenblum, 2024. "Politics, markets, and CEO pay: a congruence analysis of two competing theoretical explanations of executive compensation at large firms in Finland," Quality & Quantity: International Journal of Methodology, Springer, vol. 58(1), pages 413-444, February.
    • Handle: RePEc:spr:qualqt:v:58:y:2024:i:1:d:10.1007_s11135-023-01646-3
    DOI: 10.1007/s11135-023-01646-3
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