Behavioural Agency Theory

Abstract

In Chapter 1 it was explained that agency theory has been the dominant theoretical framework for academic research on executive compensation since the mid-1970s. Agency theory is one of a number of theoretical approaches that have been taken by academics in trying to explain executive pay. The literature on senior executive reward is now very extensive, drawing on a variety of scholarly traditions, including economics, law, organisation studies, accounting and finance. In addition to the agency approach, theoretical frameworks include tournament theory, human capital theory, the managerial power hypothesis, institutional theory, political theories and theories about fairness.¹ There have been a number of extended literature reviews and comprehensive summaries.² Behavioural research is a relative new feature of this literature.