How to strike a balance between CEO compensation and strategic risk? A longitudinal analysis

Abstract

Purpose

The purpose of this paper is to examine the relationships between CEO ownership, stock option compensation, and risk taking. The authors include important CEO power variables as moderators.

Design/methodology/approach

The paper uses a longitudinal regression analysis. In addition, the paper includes interactional plots for further interpretation.

Findings

The results indicate that CEO ownership reduces risk taking, while there is a partial support that stock options increase risk taking. CEO tenure is a powerful moderator that decreases risk taking in both CEO ownership and CEO stock option scenarios. Board independence, counter to the hypothesis in this paper, may encourage risk taking.

Research limitations/implications

The findings in this paper provide support for the inclusion of CEO power variables in CEO compensation studies. However, the study examines large publicly traded companies; thus, all findings may not be applicable to small- and medium-sized companies.

Originality/value

Scholars have encouraged more complex CEO compensation models and the authors have examined both main effect and interaction models.

Citation

Olson, B., Parayitam, S., Skousen, B. and Skousen, C. (2018), "How to strike a balance between CEO compensation and strategic risk? A longitudinal analysis", Journal of Strategy and Management, Vol. 11 No. 3, pp. 387-417. https://doi.org/10.1108/JSMA-08-2017-0055