The evolution of CEO compensation over the organizational life cycle: A contingency explanation

•The development of any organization tends to follow a predictable pattern.•OLC stages reflect a configuration of organizational contingencies.•Employee compensation systems, strategies and structure all vary with OLC stages.•The level and mix of CEO compensation are contingent on OLC stages.

There continues to be an intense debate in the public domain on executive compensation, usually centered on issues related to its effectiveness and fairness. While there are hundreds of publications on executive compensation, relatively few have investigated the role of organizational evolution on CEO compensation design. To address this research gap, we investigate CEO compensation design in the context of organizational life cycle (OLC). Beginning with an extensive review of the potential links between employee compensation and OLC, and of the theoretical explanations of such links, we introduce a contingency-based framework for explaining the relationships between CEO compensation and OLC stages. We further posit a series of propositions on the relationship between the level and mix of CEO compensation and the four OLC stages in terms of start-up, growth, maturity, and decline. We conclude with suggestions on future research directions.