CEO compensation, change, and corporate strategy
CEO compensation can influence the kinds of strategies that firms adopt. We argue that performance-related compensation creates an incentive to look for overly ambitious, hard to implement strategies. At a cost, shareholders can curb this tendency by precommitting to a regime of CEO overcompensation...
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| Format: | article |
| Language: | eng |
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2022
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| Online Access: | http://hdl.handle.net/10400.5/24376 |
| Country: | Portugal |
| Oai: | oai:www.repository.utl.pt:10400.5/24376 |
| Summary: | CEO compensation can influence the kinds of strategies that firms adopt. We argue that performance-related compensation creates an incentive to look for overly ambitious, hard to implement strategies. At a cost, shareholders can curb this tendency by precommitting to a regime of CEO overcompensation in highly changeable environments. Alternatively shareholders can commit to low CEO pay, although this requires a commitment mechanism (either by the board of the individual company, or by the society as a whole) to counter the incentive to renegotiate upwards. We study the conditions under which the different policies for CEO compensation are preferred by shareholders. |
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