Placing their bets: The influence of strategic investment on CEO pay‐for‐performance

Autor:	Wei Shi, Jeremy D. Mackey, Abhinav Gupta, Brian L. Connelly
Rok vydání:	2019
Předmět:	050208 finance Executive compensation ComputingMilieux_THECOMPUTINGPROFESSION business.industry Strategy and Management media_common.quotation_subject Compensation (psychology) 05 social sciences ComputingMilieux_LEGALASPECTSOFCOMPUTING Accounting GeneralLiterature_MISCELLANEOUS Social recognition Politics Shareholder Strategic investment 0502 economics and business Ideology Business Business and International Management Attribution 050203 business & management media_common
Zdroj:	Strategic Management Journal. 40:2047-2077
ISSN:	1097-0266 0143-2095
DOI:	10.1002/smj.3050
Popis:	Research Summary A number of studies examine the extent to which boards compensate CEOs for their firm's performance (i.e., pay‐for‐performance), but these studies typically do not incorporate what CEOs actually do to bring about those performance outcomes. We suggest that directors will make stronger internal attributions about firm performance when the CEO engages in high levels of corporate strategic investment. CEOs that invest in firm growth essentially “place their bets,” so the pay‐for‐performance relationship is stronger for them than it is for CEOs who do not invest as much in firm growth. We also theorize and find that directors make internal attributions about firm performance more for prestigious, but not less prestigious, CEOs and more when the directors collectively exhibit conservative, but not liberal, political ideologies. Managerial Summary Shareholders and other stakeholders often demand that CEOs should be paid for performance. In other words, CEOs should be paid well when the company is performing well and paid less when the company is not performing well. We add an additional dimension: boards might also consider what CEOs actually do to bring about performance outcomes. Our findings suggest that when CEOs make heavy corporate investments, they essentially “place their bets.” In this scenario, boards attribute performance to the CEO so that CEO compensation rises and falls with company performance. When CEOs make fewer corporate investments, their compensation is not as strongly associated with company performance. This primary relationship is particularly true when CEOs have high social recognition or when the directors are collectively conservative.
Databáze:	OpenAIRE
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