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This paper aims to explore the relationship between the readability of sustainability reports and chief executive officer (CEO) attributes, comprising monetary, non-monetary incentives and personal characteristics.

The study is based on an international sample of companies operating in sustainability-sensitive industries during 2016–2018.

The results prove that CEO monetary incentives, as well as CEO non-monetary incentives, negatively influence the readability of sustainability reports, revealed in a positive relationship with readability indexes, by providing reports with greater reading difficulty. Additionally, this study shows evidence about the relation of complementarity between these incentives. Other CEO characteristics have no significant effect on the readability of sustainability reports.

This research sheds the light on the role of CEO incentives in obfuscating sustainability information to portray the company, operating in sustainability-sensitive industries, in a favorable image.

This study aims to explore the impacts of the knowledge structure of CEO on corporate innovation strategy in the background of China’s national policy of innovation-driven development.

Regression analysis is used to test the direct effects and the moderating roles of financial and power incentives. It screens 685 listed companies from Chinese stock market, with the time window from 2016 to 2018.

CEO’s knowledge breadth has a significant impact on innovation strategy, but the moderating effects of power and financial incentives are not significant. CEO’s knowledge depth is negatively correlated to corporate innovation strategy; moreover, power incentive significantly strengthens the relationship, whereas financial incentive significantly weakens it.

Firms are suggested to optimize CEO knowledge structure and organizational incentive system for better implementing innovation-driven development strategy.

It is beneficial to the exploration of the micro-mechanism that enables corporate innovation strategy. Scholars may gain additional insights into the strategic management of corporate innovation from the perspective of CEO’s knowledge structure.

This study aims to investigate the question concerning whether tournament incentives motivate chief executive officers (CEOs) to be socially responsible.

Data from all A-share Chinese companies listed on the Shanghai and Shenzhen stock exchanges for the period from 2010 to 2015 are used. To draw inferences from the data, ordinary least squares (OLS) regression and cluster OLS are used as a baseline methodology. To control for the possible issue of endogeneity, firm-fixed-effects regression, two-stage least squares regression and propensity score matching are used.

A reliable evidence is found that tournament incentives motivate CEOs to be more socially responsible. Additional analysis reveals that the positive effect of CEO tournament incentives on corporate social responsibility performance (CSRP) is more pronounced in state-owned firms than it is in non-state-owned firms. The study’s findings are consistent with tournament theory and the conventional wisdom hypothesis, which proposes that better incentives lead to competitiveness, which improves financial and social performance.

The study’s findings have implications for companies and regulators who wish to enhance CSRP by giving tournament incentives to top managers. Investment in social responsibility may reduce the conflict between executives and employees and improve the corporate culture.

This study contributes to the existing literature by providing the first evidence that CEOs’ tournament incentives play a vital role in CSRP. The study’s findings contribute to tournament theory.

All that we know about the Chief Executive Officer (CEO) labour market in China comes from the studies of public listed companies and State-owned Enterprises (SOEs). This is the first attempt to examine the operation of the CEO labour market across all industrial sectors of the Chinese economy. We find that the influence of the State extends beyond SOEs into many privately owned firms. Government is often involved in CEO appointments in domestic firms and, when this is the case, the CEO has less job autonomy and is less likely to have pay linked to firm performance. Nevertheless, we find that incentive schemes are commonplace and include contracts linking CEO pay directly to firm performance, annual bonus schemes, the posting of performance bonds, and holding company stock. The elasticity of pay with respect to company performance is one or more in two-fifths of the cases where CEOs have performance contracts, suggesting many face high-powered incentives. We also show that State-owned and domestic privately owned firms are more likely than foreign-owned firms to use incentive contracts.

The purpose of this article is to examine whether the design of chief executive officer (CEO) compensation generates incentives to engage in managerial behavior that enhances customer satisfaction and whether these incentives, in turn, lead to higher firm value.

A unique dataset combining customer satisfaction and executive compensation data was used, and the relationship between option sensitivity, customer satisfaction and performance was modeled using simultaneous equations modeling with industry and year fixed effects.

Findings suggest that CEO compensation plays an important role in explaining the variation in customer satisfaction and firm value. Specifically, CEO short-term compensation (salary or bonus) has no affect on customer satisfaction or firm value; the sensitivity of CEO wealth from long-term incentive compensation to stock price changes is positively related and also exhibits an inverted U-shaped relationship with customer satisfaction; the sensitivity of CEO wealth from long-term incentive compensation to stock price changes interacts negatively with CEO longevity and industry concentration but positively with advertising expenses in affecting customer satisfaction; the sensitivity of CEO wealth from long-term incentive compensation to both stock price changes and customer satisfaction positively affect firm value; and the sensitivity of CEO wealth from long-term incentive compensation to stock price changes interacts positively with customer satisfaction to affect firm value.

This study suffers from several limitations. First, the sample is limited to firms with ACSI scores available. Second, this study is limited to only publicly traded firms, which limits our ability to generalize regarding customer satisfaction, option sensitivity and firm value.

This study has several important implications for researchers and managers. The first is that the corporate board appears to view investment in customer satisfaction as similar to an investment in other intangible assets or technology, in that they reward managers with a nonlinear payoff profile. To encourage managers to invest discretionary funds wisely, incentive compensation is important. Second, compensation committees of corporate boards should not allow the option sensitivity to reach extreme levels because, at some point, managers’ incentives appear to shift more toward short-term earnings objectives and away from investment in intangibles, which have a longer-term payoff. Third, if boards are concerned about customer satisfaction and market value, when designing compensation packages, they should shift their focus from the structure of pay to the sensitivity of pay to performance. The exception to this is that for CEOs with very long tenures (or for those close to retirement), high levels of option sensitivity may distort incentives away from a focus on customer satisfaction. Finally, our results indicate that strategies that enhance customer satisfaction provide an incremental benefit in terms of firm value, beyond incentive compensation strategies.

The results indicate that a “stakeholder focus” which includes customers is value adding for shareholders as well. The results also imply that perhaps using a “balanced scorecard” approach to assessing performance in terms of customer satisfaction outcomes, or at least acknowledging the drives of customer satisfaction explicitly, could be an alternative to using highly sensitive incentive-based compensation when such compensation schemes are less desirable.

Prior research has found that the structure of fixed versus incentive-based compensation impacts customer satisfaction. However, this is one of the first papers to investigate the relationship between the sensitivity of CEO compensation and customer satisfaction. Findings have important implications for boards who seek to structure CEO pay so that CEOs have incentives to enact policies that benefit customers and, in turn, firm performance.

Small public family firms apply contracting differently given the peculiar motivations of founding families and the degree to which they monitor operations. The purpose of this paper is to examine the effects of family ownership, control, and CEO dividends on CEO incentive compensation.

The sample consisted of 194 firms, covering about 40 percent of the relevant S&P SmallCap 600 firms. Employed were a logistic regression of the presence of incentive compensation plan and a panel regression of incentive compensation ratio against the family ownership, family CEO, CEO ownership, and dividend income variables as well as firm-specific and CEO-specific control variables.

For 1,532 firm-year observations among S&P SmallCap600 index firms during 1999-2007, the authors found that family ownership and CEO dividend income ratio negatively related to the likelihood of an incentive compensation plan and to the ratio of equity-based compensation to total CEO pay. Additionally, the effect of CEO dividend income was limited to firms with outside CEOs.

Boards of small capitalization firms should consider the incentive effects of CEO dividend income and CEO family membership when setting their compensation policies.

S&P SmallCap600 index firms are unique because they are much smaller than those listed in the S&P 500 or the Fortune 500, and are subject to more family influence. SmallCap firms are comparable in size to the foreign firms previously researched but are still well covered by analysts, and benefit from audited financial statement variables, which include dividends and stock market returns.

The purpose of this study is to investigate the association between corporate risk and the interaction between CEO incentive compensation and CEO overconfidence.

This empirical study performs random and fixed effect (FE) regression analysis. It uses option-implied measures of CEO overconfidence.

The authors contribute to the existing literature by showing (1) that the positive association between high CEO incentive compensation and corporate risk only exists in the sphere of overconfident CEOs and (2) that the positive association between overconfident CEOs and corporate risk only exists in the sphere of high CEO incentive compensation. The authors show that the combination of high CEO incentive compensation and CEO overconfidence is associated with an increase in corporate risk of approximately 6% while the individual effects are for all practical reasons negligible. The results imply that only the combination of high CEO incentive compensation and CEO overconfidence is associated with a significantly elevated level of corporate risk.

The findings are based on S&P 1500 non-financial firms in the period 2007–2016.

The findings have important implications in terms of CEO selection and compensation.

This study provides empirical evidence on the importance of the dual presence of high CEO incentive compensation and CEO overconfidence for corporate risk. The previous literature has primarily investigated these phenomena in isolation.

CEO incentive contracts are commonplace in China but their incidence varies significantly across Chinese cities. We show that city and provincial policy experiments help explain this variance. We examine the role of two policy experiments: the use of Special Economic Zones (SEZs) to attract Foreign Direct Investment (FDI), and the privatisation of State-Owned Enterprises (SOEs). The introduction of SEZs is found to be uncorrelated with the prevalence of CEO incentive contracts. However, firms are more likely to use such contracts in areas that saw rapid SOE privatisation, irrespective of the firm’s own current ownership status and irrespective of the size of the SOE sector in the late 1970s. The positive effect of privatisation is robust to various estimation techniques and model specifications. These findings suggest that domestic privatisation policies have been more influential than FDI in driving the expansion of incentive contracts in China.

Following the optimal contracting hypothesis, this study investigates the issue of whether the board of director's ex ante choice to incorporate individual performance evaluation (IPE) measures into the CEO bonus plan rewards managerial decisions not reflected in measures of the firm's current financial performance. Empirical results provide evidence that the use of IPE in the CEO bonus plan is an increasing function of the proportion of outsider directors on the board and a decreasing function of the informativeness of financial performance measures. This study also demonstrates how the use of IPE in incentive contracting can explain CEO cash compensation that is not explained by the firm's current performance and governance variables. Finally, the CEO incentive cash compensation not explained by observable performance measures or governance structure is positively associated with firm future performance one year after its award. Overall, results support the optimal contracting hypothesis. IPE appears to be used to increase the informativeness of CEO actions and determine the level of current CEO cash incentive compensation.

The purpose of this paper is to investigate whether innovation effort is lower for firms exhibiting signs of higher chief executive officer (CEO) dominance and whether such CEOs can be incentivized to pursue risky ventures such as innovation projects in line with shareholder's interests that are geared toward the long-term growth of the firm.

The paper utilizes panel data of US publicly listed companies (2007–2016) to address the influence of CEO dominance on firm innovation effort and the moderating effects of incentives in this relationship through ordinary least squares (OLS) estimations. A two-stage least squares (2SLS) technique is also employed to address possible endogeneity. As a robustness check, further analysis is conducted utilizing an alternative proxy for CEO incentive as well as Tobit analysis (with panel-level random effects).

Results from both OLS and Tobit estimations offer two key findings. First, there is a significantly negative relationship between CEO pay slice and firm research and development (R&D) intensity. Second, the interaction effect of CEO incentives and CEO dominance is significant and positive.

When provided with the right incentives, such as those that reward long-term performance, dominant CEOs can be incentivized to go after risky ventures like innovation projects that are crucial to promoting the long-term growth of the firm.

This paper utilizes R&D instead of patent outputs as proxies for innovation where the former enables studying R&D efforts for more recent periods compared to prior studies that utilize patent data.