A Modest Test of an Immodest Theory: The Functional Theory of Stratification

Two hypothesis relating responsibility, reward and performance were designed to test the Davis and Moore functional theory of stratification. Large companies in the private sector of the United States economy were selected as the source of empirical evidence to test the theory. The data base was thought to be favorable to positive findings. The responsibility variable was measured by company assets, reward was measured by total compensation of the chief executive officer, and performance was indexed by several measures of growth and profitability. Over 700 of the largest companies in the United States were grouped into sixteen relatively homogenous business activity types in order to control for (1) scarcities of qualified incumbents, (2) structural differences between industries and (3) market conditions. The results provide limited evidence of a relationship between magnitude of responsibility (functional importance) and executive compensation (reward). No support was found for a hypothesized relationship between company performance, however measured, and executive compensation. Taken as a whole, the results do not confirm the functional theory.