How CEO underpayment influences strategic change: the equity perspective

Linlin Wang; Wan Jiang

doi:10.1108/MD-03-2017-0240

How CEO underpayment influences strategic change : the equity perspective

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

Overview

14 Scopus Citations

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Author(s)

Linlin Wang
Wan Jiang

Related Research Unit(s)

College of Business

Detail(s)

Original language	English
Pages (from-to)	2277-2292
Journal / Publication	Management Decision
Volume	55
Issue number	10
Publication status	Published - 2017

Link(s)

DOI	DOI https://doi.org/10.1108/MD-03-2017-0240 Final Published version
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Link to Scopus	https://www.scopus.com/record/display.uri?eid=2-s2.0-85033696096&origin=recordpage
Permanent Link	https://scholars.cityu.edu.hk/en/publications/publication(42cc3ed7-440b-4217-9830-3b0b36f36ddb).html

Abstract

Purpose - The purpose of this paper is to examine how the magnitude of strategic change may be influenced by Chief executive officer (CEO) underpayment relative to comparison CEOs. Based on equity theory, the authors propose that compensation inequity motivates underpaid CEOs to restore equity, which can take the form of making a greater magnitude of strategic change. In addition, this study proposes three important moderators of the relationship between CEO underpayment and strategic change.

Design/methodology/approach - Results from a sample covered in the Standard & Poor’s (S&P) ExecuComp database for the years 1996-2014 provide support for these theoretical predictions.

Findings - CEO underpayment has a positive effect on the magnitude of strategic change. Top management team compensation gap and firm slack are proposed to weaken the impact of CEO underpayment on strategic change, while environmental complexity is predicted to strengthen the relationship between CEO underpayment and strategic change.

Originality/value - This study contributes to strategic change literature by linking research on CEO relative compensation to strategic change studies. This study contributes to equity theory and CEO relative compensation literature by extending its implications to firms’ decisions on strategic change. Moreover, it also contributes to equity theory by revealing the boundary conditions that mitigate or aggravate the impacts of CEO underpayment on firms’ strategic decisions.