ABSTRACT
The popular interest in board of director effectiveness is motivated by many factors, but is exacerbated by the widely held view that boards have lost control of chief executive officer (CEO) pay. One emerging theory of CEO pay is based on the information processing perspective and suggests that CEOs will be paid commensurate with the level of complexity they are expected to manage. In support of this view, Henderson and Fredrickson and Sanders and Carpenter showed that characteristics of the organization that increase managerial complexity also positively affect the level of CEO pay. The chapter argues that refocusing increases the board's power over pay relative to the CEO, in contrast to the alternative explanation that any relative decrease in pay reflects the anticipation of decreased diversification-related complexity facing a CEO. Corporate refocusing has no main or contingent effect on CEO pay.
