The role of CEO relative standing in acquisition behavior and CEO pay

In this study, we develop and test a theory of CEO relative pay standing. Specifically, we propose that CEOs with negative relative pay standing status (underpaid relative to comparison CEOs) will engage in acquisition activity, as a self‐interested means of attempting to realign their pay with that of their peers. We further propose that, when CEOs with negative relative pay standing acquire, they will tend to finance those acquisitions more heavily with stock than cash, to mitigate the risk associated with those deals. Finally, we argue that acquisition activity will partially mediate the influence of CEO negative relative pay standing on subsequent CEO compensation increases; however, that pay growth will come primarily in the form of long‐term incentive pay. Our results support our predictions. Copyright © 2014 John Wiley & Sons, Ltd.     

Revisiting the gender gap in CEO compensation: Replication and extension of Hill,Upadhyay, and Beekun's (2015) work on CEO gender pay gap

Research Summary: The increasing number of women chief executives motivates considerable interest in examining possible gender differences in CEO compensation. Recently, Hill, Upadhyay and Beekun reported that female CEOs receive greater compensation than male CEOs, which runs counter to common wisdom that the gender pay gap in the labor market favors men over women. With the goal of contributing to cumulative knowledge development in this area, we seek to reexamine Hill et al.'s finding about gender differences in CEO compensation by extending the analyses further in time, using a larger sample of firms and more rigorous empirical analyses. Our findings, which are robust to different statistical procedures and econometric specifications, do not reveal reliable evidence for differences in compensation paid to male and female CEOs. Managerial Summary : For years, a lively debate has centered on the issue of gender pay gap. The ubiquity of the pay gap between men and women has recently been questioned by Hill et al. who identify the chief executive officer (CEO) role as a workplace position where women receive greater compensation than men. Our investigation examines whether women CEOs are indeed compensated substantively more than male CEOs. We seek to replicate earlier work by Hill and colleagues, using an expanded dataset over a longer period of time and with more rigorous analytical tools. We do not find reliable evidence for a difference in compensation paid to male and female CEOs, suggesting that claims about gender gap in CEO compensation favoring women over men may be premature.     

Upper‐echelon executive human capital and compensation: Generalist vs specialist skills

This study extends current knowledge of upper echelon executive compensation beyond the CEO, specifically CFO compensation, based on whether they possess generalist or specialist skills. We find that “strategic” CFOs with an elite MBA (generalist) consistently command a compensation premium, while “accounting” CFOs (specialist) and CFOs with a non‐MBA master's degree, even from an elite institution, do not. Further, scarce “strategic” CFOs are awarded both higher salaries and higher equity‐based compensation. Our findings support the view that unique complementarities between scarce CFOs and firms increase these executives' bargaining power leading to pay premium. Our results are robust to post‐hiring years, firm sizes, board characteristics, and CFO's insider/outsider status. We contribute at the confluence of upper‐echelon compensation, executive human capital, resource‐based view, and assortative matching literatures. Copyright © 2014 John Wiley & Sons, Ltd.     

Do female and ethnically diverse executives endure inequity in the CEO position or do they benefit from their minority status? An empirical examination

We present competing hypotheses regarding whether gender and ethnic minority CEOs endure inequities resulting in lower compensation and higher likelihood of job exit or benefit from their valuable, rare, and inimitable minority status, resulting in higher compensation and lower likelihood of job exit. Using a longitudinal sample, we find support for the resource‐based hypothesis regarding compensation that suggests CEOs benefit from their minority status to receive higher compensation than white male CEOs receive. However, we also find mixed support for our hypotheses relating CEO minority status to the likelihood of exit. We find that the effects of minority status on likelihood of exit are significantly different for female and ethnic minority CEOs such that the former relationship is negative while the latter is positive. Copyright © 2014 John Wiley & Sons, Ltd.     

Firm‐specific knowledge assets and employment arrangements: Evidence from CEO compensation design and CEO dismissal

Research summary : We argue that firms with greater specificity in knowledge structure need to both encourage their CEOs to stay so that they make investments with a long‐term perspective, and provide job securities to the CEOs so that they are less concerned about the risk of being dismissed. Accordingly, we found empirical evidence that specificity in firm knowledge assets is positively associated with the use of restricted stocks in CEO compensation design (indicating the effort of CEO retention) and negatively associated with CEO dismissal (indicating the job securities the firm committed to CEOs). Furthermore, firm diversification was found to mitigate the effect of firm‐specific knowledge on both CEO compensation design and CEO dismissal, as CEOs are more removed from the deployment of knowledge resources in diversified firms. Managerial summary : A firm's knowledge structure, that is, the extent to which its knowledge assets are firm‐specific versus general, has implications for both CEO compensation design and CEO dismissal. In particular, we find that a firm with a high level of firm‐specific knowledge has the incentive to retain its CEO through the use of restricted stocks in CEO compensation. Such a firm is also likely to provide job security for its CEO, leading to a lower likelihood of CEO dismissal. These arguments, however, are less likely to hold in diversified corporations as CEOs in such corporations are more removed from the deployment of knowledge assets. A key managerial implication is that CEO compensation and job security design should be made according to the nature of firm knowledge assets. Copyright © 2016 John Wiley & Sons, Ltd.     

Stakeholder management as a predictor of CEO compensation: main effects and interactions with financial performance

We test the effects of stakeholder management on CEOs' salaries, bonuses, stock options, and total compensation. We also examine the extent to which the interaction of stakeholder management and financial performance determines compensation. Using a longitudinal database of 406 Fortune 1000 firms, our results suggest that stakeholder management is relevant to boards of directors when setting CEO compensation. Specifically, we found a significant, negative main effect of stakeholder management on CEO salaries. Further, we found that stakeholder management typically reduces the rewards CEOs may get for increasing levels of financial performance. In tandem, these results indicate that CEOs may jeopardize their personal wealth by pursuing stakeholder‐related initiatives. Copyright © 2005 John Wiley & Sons, Ltd.     

Buying bad behavior: Tournament incentives and securities class action lawsuits

Research summary: Tournament theory suggests that a large gap in pay between CEOs and top managers can provide incentives to perform, but we argue that it can also elicit negative effort and even motivate the kind of behavior that leads to lawsuits. We posit that this negative effort is greater when firms have high levels of unrelated diversification because there is less operational interdependency, so tournament effects are stronger. We also contend that the influence of tournament incentives on behavior leading to lawsuits is weaker when environmental uncertainty is high. We discuss the consequences of these findings for research on fraud and tournament theory as well as the practical repercussions for firms, investors, and policymakers. Managerial summary : Each year, the press has a field day when companies announce the outsized compensation packages laid out for CEOs. Economists use “tournament theory” to describe how high CEO pay motivates everyone else to work hard to get into the top job. The problem with this approach is that, yes, top managers work harder when the gap between their and the CEO's pay increases, but as that gap widens, it also incentivizes top managers to cheat or cut corners. As a result, we find that the gap between CEO and top manager compensation predicts the likelihood that shareholders will file a securities class action lawsuit against the company. This gap in pay is an especially good predictor of lawsuits for highly unrelated diversified companies and companies facing a low level of external uncertainty. Copyright © 2015 John Wiley & Sons, Ltd.     

CEO compensation in relation to worker compensation across countries: The configurational impact of country‐level institutions

Executive compensation and its relation to that of rank and file employees are vital areas of strategy research. This study contributes to our understanding of cross‐national differences in executive compensation by exploring how key formal and informal country‐level institutions of social power structures combine to shape CEO and worker compensation across countries as well as the resulting pay dispersion. Analyzing data spanning 54 countries using the configurational approach fuzzy set Qualitative Comparative Analysis (fsQCA), the study also explores the causal asymmetry underlying compensation outcomes by investigating institutional configurations linked to high CEO compensation, high worker pay, and high pay dispersion and those configurations linked to the absence of these outcomes. The article concludes by discussing the study's implications for theory and research on executive compensation. Copyright © 2015 John Wiley & Sons, Ltd.     

Are founder CEOs more overconfident than professional CEOs? Evidence from S&P 1500 companies

Research summary : We provide evidence that founder chief executive officers (CEOs) of large S&P 1500 companies are more overconfident than their nonfounder counterparts (“professional CEOs”). We measure overconfidence via tone of CEO tweets, tone of CEO statements during earnings conference calls, management earnings forecasts, and CEO option‐exercise behavior. Compared with professional CEOs, founder CEOs use more optimistic language on Twitter and during earnings conference calls. In addition, founder CEOs are more likely to issue earnings forecasts that are too high; they are also more likely to perceive their firms to be undervalued, as implied by their option‐exercise behavior. We provide evidence that, to date, investors appear unaware of this “overconfidence bias” among founders. Managerial summary : This article helps to explain why firms managed by founder chief executive officers (CEOs) behave differently from those managed by professional CEOs. We study a sample of S&P 1500 firms and find strong evidence that founder CEOs are more overconfident than professional CEOs. To date, investors appear unaware of this overconfidence bias among founders. Our study should help firm stakeholders, including investors, employees, suppliers, and customers, put the statements and actions of founder CEOs in perspective. Our study should also help members of corporate boards make more informed decisions about whether to retain (or bring back) founder CEOs or hire professional CEOs. Copyright © 2016 John Wiley & Sons, Ltd.     

Shareholder perceptions of the changing impact of CEOs: Market reactions to unexpected CEO deaths, 1950–2009

Research summary : Despite a number of studies highlighting the important impact Chief Executive Officers (CEOs) have on firms, several theoretical and methodological questions cloud existing findings. This study takes an alternative approach by examining how shareholders' perceptions of CEO significance have changed over time. Using an event study methodology and a sample of 240 sudden and unexpected CEO deaths, we show that absolute (unsigned) market reactions to these events in U.S. public firms have increased markedly between 1950 and 2009. Our results indicate that shareholders act in ways consistent with the belief that CEOs have become increasingly more influential in recent decades. Managerial summary : With Chief Executive Officers (CEOs) facing increased scrutiny and receiving ever‐increasing pay packages, substantial debate exists about their overall contribution to firm outcomes. While prior research has sought to calculate the proportion of firm outcomes attributable to the CEO, this study takes an alternative approach by using the “wisdom of the crowds” to assess how shareholders think about the importance of CEOs. Our study finds that shareholders, perhaps the most financially motivated stakeholder, view CEOs as increasingly important drivers of firm outcomes, good and bad, versus their peers from decades earlier. Notably, market reaction to the unexpected death of a CEO has increased steadily over the last six decades, highlighting the importance of succession planning and supporting, at least partially, the increased compensation given today's top executives. Copyright © 2016 John Wiley & Sons, Ltd.     

CEO–CFO team optimism: Commercial real estate transactions and REIT performance

The managerial optimism literature concentrates on CEOs neglecting other executive team members. We evaluate the interplay of the optimism levels of the CEOs and CFOs of real estate investment trusts, and study their commercial real estate transactions. We find that firms led by optimistic CEO/CFO teams pay 3% more than their peers for their asset acquisitions if cash ratio increases by one percentage point. Our findings also exhibit inferior stock performance by optimistic teams following a transaction. Conversely, diversity in terms of CEO/CFO optimism prevents firms from overpaying, serving as a soft governance mechanism with salience to firm performance.     

Performance deviations and acquisition premiums: The impact of CEO celebrity on managerial risk‐taking

Research summary: This article draws on identity control theory and a study of acquisition premiums to explore how CEO celebrity status and financial performance relative to aspirations affect firm risk behavior. The study finds that celebrity CEOs tend to pay smaller premiums for target firms, but these tendencies change when prior firm performance deviates from the industry average returns, thereby leading these CEOs to pay higher premiums. The study also finds that the premiums tend to be even larger when celebrity CEOs have more recently attained celebrity status. Taken together, these findings contribute to identity control theory and CEO celebrity literatures by suggesting that celebrity status is a double‐edged sword and that the internalization of celebrity status by CEOs strongly influences the decision‐making of CEOs. Managerial summary: The purpose of this article is to examine how CEO celebrity status and financial performance relative to aspirations affect the size of acquisition premiums. The study finds that celebrity CEOs tend to pay smaller premiums for target firms. However, when celebrity CEOs' prior firm performance is either better or worse than the industry average, these CEOs pay higher premiums. This situation is exacerbated when the CEO has only recently been crowned a celebrity. In effect, these CEOs feel great pressure to match the inflated performance expectations that come with celebrity status. These findings suggest that being a celebrity is a double‐edged sword. The implication here is that CEOs who have recently been crowned a celebrity should be aware of these pressures and cope accordingly. Copyright © 2015 John Wiley & Sons, Ltd.     

Social network contingency,symbolic management,and boundary stretching

A firm's structural position within corporate networks may affect the extent to which it engages in boundary stretching practices. Since social norms support low CEO compensation, offering high CEO compensation in China can be seen as a boundary stretching practice. Setting up a compensation committee (CC) may be viewed as a form of symbolic management in China. We argue that firms operating within central corporate network positions opt to pay higher CEO compensation without engaging in symbolic management. On the other hand, firms operating in structural hole positions tend to either pay lower CEO compensation or use CCs as a symbolic management tool in order to pay higher CEO compensation. Our hypotheses are largely supported based on 7,618 firm‐year observations in China. Copyright © 2013 John Wiley & Sons, Ltd.     

Narcissism,director selection,and risk‐taking spending

We explain why CEOs favor new directors who are similar in narcissistic tendency or have prior experience with other similarly narcissistic CEOs. Because powerful CEOs are more able to select such individuals onto their boards, CEO power is predicted to be positively associated with the above characteristics of new directors. These associations are expected to be stronger when a new director is more different from the CEO in salient demographic characteristics. Moreover, we explain why new directors favored by CEOs are more supportive of their decision making, strengthening the positive relationship between CEO narcissism and risk‐taking spending. Our findings provide considerable support for our theory. This study introduces personality theories to corporate governance research on director selection and to research on how triads influence dyadic relations. Copyright © 2014 John Wiley & Sons, Ltd.     

CEO political ideologies and pay egalitarianism within top management teams

Research summary : We examine the influence of CEO and compensation committee liberalism on top management teams (TMT ) pay arrangements. Given that politically liberal individuals tend to value egalitarianism, we test whether firms with liberal CEO s tend to (1) reduce pay dispersion among non‐CEO executives; and (2) reduce pay gaps between CEO and non‐CEO executives, and whether compensation committee liberalism moderates these relationships. We find some evidence of a direct effect of CEO liberalism on TMT pay arrangements as well as some interaction between CEO and compensation committee liberalism on the pay arrangements. This study provides a better understanding of the antecedents of TMT pay arrangements and empirical evidence showing the influence of values at the top of organization . Managerial summary : Do the values of the CEO and compensation committee influence the pay of other top managers? Our study provides evidence that political ideology affects top manager pay. We examine whether CEO liberalism produces more egalitarian pay arrangements among top managers, and whether the liberalism of the compensation committee affects that relationship. We find that CEO liberalism reduces differences in the total pay among top managers, but does not influence the difference between CEO total pay and the total pay of top managers. We also find that compensation committee liberalism strengthens the negative influence of CEO liberalism on differences in total pay among top managers. Finally, we find that CEO liberalism reduces the difference between CEO bonus pay and the bonus pay of other top managers . Copyright © 2016 John Wiley & Sons, Ltd.     

Compensation transparency and managerial opportunism: a study of supplemental retirement plans

Existing research on managerial compensation is based primarily on optimal contracting and managerial hegemony theories. Under the optimal contracting theory, observed compensation contracts are optimally determined, aligning the interests of managers and shareholders. Under the managerial hegemony theory, observed compensation contracts deviate from the optimum because top managers with power over boards are able to influence their own pay. I argue that the impact of managerial power over boards on managerial pay, and hence the deviation of compensation contracts from the optimum, is contingent on the transparency of managerial compensation. Within this framework, I investigate the impact of supplemental executive retirement plans (SERPs)— historically the least transparent compensation component— on opportunistic decision making. An empirical analysis based on a time series sample of CEOs of S&P/TSX60 firms provides support of the compensation transparency theory. I find that SERP benefits are primarily driven by variables proxying for CEO power over the board, whereas more transparent compensation components are primarily driven by economic factors. The results also suggest that CEOs whose SERPs are contingent on firm performance appear to reduce firm R&D expenditures as they approach retirement. Both findings provide important contributions to existing research on the impact of managerial compensation on opportunistic decisions. Copyright © 2008 John Wiley & Sons, Ltd.     

Higher Highs and Lower Lows: The Role of Corporate Social Responsibility in CEO Dismissal

Research summary: Investing a firm's resources in corporate social responsibility (CSR) initiatives remains a contentious issue. While research suggests firm financial performance is the primary driver of CEO dismissal, we propose that CSR will provide important additional context when interpreting a firm's financial performance. Consistent with this prediction, our results suggest that past CSR decisions amplify the negative relationship between financial performance and CEO dismissal. Specifically, we find that greater prior investments in CSR appear to expose CEOs of firms with poor financial performance to a greater risk of dismissal. In contrast, greater past investments in CSR appear to help shield CEOs of firms with good financial performance from dismissal. These findings provide novel insight into how CEOs' career outcomes may be affected by earlier CSR decisions. Managerial summary: In this study, we examined a potential personal consequence for CEOs related to corporate social responsibility (CSR). We explored the role prior investments in CSR play when a board evaluates the firm's financial performance and considers whether or not to fire the CEO. Our results suggest that while financial performance sets the overall tone of a CEO's evaluation, CSR amplifies that baseline evaluation. Specifically, our results suggest that greater past investments in CSR appear to (a) greatly increase the likelihood of CEO dismissal when financial performance is poor, and (b) somewhat reduce the likelihood of CEO dismissal when financial performance is good. Thus, striving to deliver profits in a socially responsible manner may have both positive and negative personal consequences. Copyright © 2017 John Wiley & Sons, Ltd.     

Why do some outside successions fare better than others? The role of outside CEOs' prior experience with board diversity

Research summary: We develop a theory to explain why new outside CEOs can better manage their relationship with the board if they previously served on boards that were more diverse than the focal board. We predict that a new outside CEO's prior experience with more diverse boards not only reduces the likelihood of post‐succession CEO turnover and director turnover, but also improves firm performance. Results from an analysis of 188 outside CEOs in a sample of Fortune 500 companies provide support for our theory. This study contributes to upper echelon theory and research by identifying outside CEOs' prior experience with board diversity as an important aspect of their background that influences a range of major organizational outcomes, including CEO turnover, director turnover, and firm performance. Managerial summary: It is challenging to be a new CEO who comes from outside of the organization. Our study examines why some new outside CEOs fare better than others. We suggest that a positive relationship with the board of directors is a key factor in a new outside CEO's success. A new outside CEO can better manage the relationship with the board if he or she has prior experience working with other demographically diverse boards. In contrast, when the focal board is more diverse than the other boards on which the new CEO previously served, the new CEO tends to struggle in managing his or her relationship with the board, experiencing a higher likelihood of turnover and delivering worse financial performance. Copyright © 2015 John Wiley & Sons, Ltd.     

Labor market evaluation versus legacy conservation: What factors determine retiring CEOs' decisions about long‐term investment?

Do CEOs nearing retirement attempt to boost short‐term firm performance or do they care more about what type of legacy they will leave behind? The two opposing predictions about the behavior of CEOs upon retirement suggest that retiring CEOs' decisions about certain long‐term investment items may be more complex than suggested in the literature. In search of an answer to this question, we examine the relationship between CEO retirement and the level of firm commitment to corporate social responsibility (CSR). The results show that CEO retirement has a negative effect on firm commitment to CSR. However, we found that the negative effect becomes weaker when CEOs retire at relatively older ages or are retained on the board of directors of their own firms. Our finding suggests that CEOs who face weaker pressure from the labor market for corporate directors may pay more attention to preserving their legacy. Copyright © 2014 John Wiley & Sons, Ltd.     

CEO compensation in EU telecom companies: Does the state design the right incentives?

This paper analyzes the structure of CEO pay in European fixed telecommunication companies, focusing on the impact of state ownership. Results show that, under the (partial or total) control of the state, the level of CEO compensation is lower and pay-performance sensitivity is higher than in privately-controlled firms. This finding suggests the state provides an incentive as well as a monitoring effect. However, when the state holds the majority of the shares, the pay level is significantly affected by the CEO power, suggesting that in these firms, CEOs are more likely to be entrenched with boards and succeed in raising their pay.