Chief marketing officer’s equity incentives: economic determinants and effects on shareholder value

This paper aims to investigate the economic determinants and the effects on firm value of the Chief Marketing Officer’s (CMO’s) equity incentives.

The empirical analysis uses 586 firm-year observations corresponding to 227 unique firms collected from Execucomp dataset over the period 2000-2009.

The paper documents that when a firm’s marketing intensity increases, the CMO’s equity incentives significantly increase; CMO’s equity incentives are positively related to shareholder value, and this positive relationship is incremental to that between the Chief Executive Officer’s (CEO)’s equity incentives and firm value; the positive impact of the CMO’s equity incentives on the firm value is partially mediated by marketing investments.

The paper helps understand under which circumstances firms provide the CMO with high-equity incentives and what the performance implications are of providing the CMO with long-term incentives.

Results indicate that companies should try to incent the CMO with equity-based incentives because the CMO can boost shareholder value on a way that is incremental to how the CEO does so. As a consequence, if the board of directors decides not to provide the CMO with sufficient equity incentives, it is likely that this decision will be suboptimal for shareholders.

This paper is the first to analyze the structure and effect on firm value of the CMO’s compensation in answer to calls for research on compensation of executives other than CEOs.