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

William Kline (Department of Management, School of Business Administration, Pennsylvania State University, Harrisburg, Pennsylvania, USA)
Masaaki Kotabe (Fox School of Business and Management, Temple University, Philadelphia, Pennsylvania, USA)
Robert D. Hamilton (Department of Strategic Management, Fox School of Business and Management, Temple University, Philadelphia, Pennsylvania, USA)
Steven Balsam (Fox School of Business and Management, Temple University, Philadelphia, Pennsylvania, USA)

Journal of Strategy and Management

ISSN: 1755-425X

Article publication date: 15 May 2017

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.

Keywords

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

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited