ScholarLens Back to search
2005•The Journal of FinanceOpen access

CEO Compensation, Change, and Corporate Strategy

James Dow, Clara C. Raposo

Open full text 146 citations

Abstract

ABSTRACT 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.

About this research paper

What this paper is about

ABSTRACT 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.

Why it matters

OpenAlex reports 146 citations for this work. Citation counts describe recorded attention and do not establish research quality.

Key contribution

A contribution statement is not available in the OpenAlex record.

Method / approach

Method details are not available in the OpenAlex metadata.

Main findings

Findings are not separately available in the OpenAlex metadata.

Limitations

Limitations are not available in the OpenAlex metadata.

Applications

Application details are not available in the OpenAlex metadata.

Available abstract

ABSTRACT 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.

Key concepts: Shareholder, Incentive, Commit, Compensation (psychology), Executive compensation, Business, Mechanism (biology), Microeconomics

Related papers

Related paper 1Related paper 2Related paper 3
Back to paper searchBrowse research topicsOriginal source
CEO Compensation, Change, and Corporate Strategy — Research Paper | ScholarLens