Executive compensation: An examination of the influence of TMT compensation on risk-adjusted performance

Abstract

Purpose

The purpose of this paper is to examine how executive pay schemes influence managerial efficiency, which the authors measure as the risk-adjusted firm performance.

Design/methodology/approach

The authors utilized hierarchical regression to test the hypotheses.

Findings

The authors find that as options constitute a higher percentage of total compensation packages, subsequent firm risk-adjusted performance declines. The authors also find an inverse relationship between TMT stock ownership and risk-adjusted performance.

Research limitations/implications

The findings suggest that the firm stakeholders should reconsider the likely influence of option-based incentives and equity holdings on the risk-adjusted performance.

Originality/value

Most executive compensation research focuses on either the pay-to-performance or pay-to-risk links. However, in this paper, the authors combine both the performance and risk dimensions simultaneously.

Citation

Kline, W., Kotabe, M., Hamilton, R.D. and Balsam, S. (2017), "Executive compensation: An examination of the influence of TMT compensation on risk-adjusted performance", Journal of Strategy and Management, Vol. 10 No. 2, pp. 187-205. https://doi.org/10.1108/JSMA-02-2016-0015