Going short‐term or long‐term? CEO stock options and temporal orientation in the presence of slack

Research summary: We draw on behavioral agency theory to explain how decision heuristics associated with CEO stock options interact with firm slack to shape the CEO's preference for short‐ or long‐term strategies (temporal orientation). Our findings suggest CEO current option wealth substitutes for the influence of slack resources in encouraging a long‐term orientation, while prospective option wealth enhances the positive effect of slack on temporal orientation. Our theory offers explanations for non‐findings in previous analysis of the relationship between CEO equity based pay and temporal orientation and provides the insights that CEO incentives created by stock options (1) enhance the effect of available slack upon temporal orientation and (2) can both incentivize and de‐incentivize destructive short‐termism, depending upon the values of current and prospective option wealth. Managerial summary: We explore how compensation design can play a role in affecting the CEO's preference for short‐ or long‐term strategic projects. When the CEOs have accumulated option wealth, they are more likely to invest in the long term. Yet when they have a large number of recently granted options with the potential to generate significant wealth in the event of successful risk taking, the CEO is more likely to prefer the short term in order to achieve personal wealth gains more quickly. The more liquid assets the firm holds, the weaker both of the aforementioned effects. An implication for boards is that they should anticipate CEO short‐termism if the CEO has been granted new options, underlining the potential negative consequences of option compensation. Copyright © 2015 John Wiley & Sons, Ltd.     

A LONGITUDINAL ANALYSIS OF THE CONTEXT AND STRUCTURE OF A LARGE BRITISH FINANCIAL INSTITUTION

This study represents an analysis of the changes in the environment, context and structure of an organization, using the full Aston Interview Schedule.² The limitations of generalizing from a single case are acknowledged, but the longitudinal analysis provides support for the notion that organizations can and do develop self-evaluative capacities when threatened by external change. The results of the process of self-evaluation on the part of the organization are shown as changes in the organization's scores on the various scales of organizational context and structure developed by the Aston school, at two points in time. These changes provide support for a number of conjectures arising from previous analyses of the relationships among the structural dimensions of organizational form displayed by the Aston methodology; notably the relationship between size/standardization and centralization/standardization. The analysis also suggests that the centralization scale can be viewed as having two components – one related to policy decisions, the other to operational decisions.