Size, Growth, Profits, and Executive Compensation in the Large Corporation: A Study of the 500 Largest United Kingdom and United States Industrial Corporations

By David J. Smyth; William J. Boyes | Go to book overview

8 Executive Compensation
and Corporate Objectives
in the Non-Regulated
Firm

I INTRODUCTION

Previous chapters have considered various topics in industrial economics including the choice of measures of firm size and concentration, profitability and the growth of firms. We now turn to an investigation of the fundamental objectives underlying the operation of corporations.

Most of the work on the theory of the firm assumes that firms are profit maximisers. Baumol ( 1958, 1962, 1967) argued that this assumption involves a fundamental mis-specification of corporate behaviour in an imperfectly competitive world and suggested that the paramount goal of those in control of corporations may not be profit maximisation, but maximisation of the sales revenue of the firm subject to a minimum profits constraint.

In this chapter an attempt is made to ascertain just what variables serve to influence the decisions of top management. In the next chapter we determine whether these goals remain invariant for firms which are bound by a rate of return constraint. This latter type of firm has been the subject of much recent interest in the United States, and the goals which motivate the managers of these firms have crucial implications for the efficiency of resource allocation and economic, welfare. As this type of firm seems to have pressures, and hence managerial objectives, markedly different from other firms we analyse, we consider the regulated firm in a separate chapter.

Our empirical evidence will be for the United States as we have not been able to obtain comparable data for the United Kingdom.

We shall assume that executives are compensated in accordance with the objectives of the firm. The objectives that will be considered

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