An economic, organizational and behavioral model of the determinants of CEO tenure

This paper seeks to determine the extent to which chief executive officer (CEO) reward systems align the interests of CEOs with interests of stockholders and, therefore, counter the agency problem. The theoretical framework used differs from previous research in two major areas. First, the model focuses on the determinants of CEO tenure rather than CEO compensation, an explicit acknowledgement that most firms do not rely solely on firm performance to determine executive compensation, but rather depend on the 'going rate' for CEOs. Second, the model integrates the theoretical constructs from economic, organizational, and behavioral theory. This interdisciplinary model should provide a broader perspective of the environment in which CEOs operate and minimize the pitfalls associated with prior research which has generally adopted the perspective of only a single discipline. The empirical results from this study show that the power structure of an organization and certain key behavioral traits of CEOs are important in the CEO reward system, independent of firm performance. Moreover, these factors even seem to supercede the influence of corporate performance in their impact on CEO tenure.