Inside the black box: The contrasting effects of tmt long-term incentives on interest alignment

Cynthia E. Devers, Tim R. Holcomb, R. Michael Holmes, Albert A. Cannella

Research output: Chapter in Book/Report/Conference proceedingConference contribution

3 Scopus citations

Abstract

We develop a comprehensive, multi-theoretical model to examine the interest alignment properties of long-term incentive pay. Specifically, we examine the direct and indirect (through managerial risk behavior) effects of TMT long-term incentives on shareholder return. As expected, the level of aggregate long-term incentives held by the TMT exhibited a positive influence on shareholder return. Results also show that long-term incentives increased acquisition behavior; however, this effect was attenuated by the level of dispersion in TMT long-term incentives. Most interestingly, contrary to agency theory assumptions, our findings show that acquisition behavior exhibited a negative effect on shareholder return. Thus, while long-term incentives increased risk behavior, acquisitions decreased shareholder return. Taken together, we argue that these findings advance compensation theory and research by offering a more comprehensive theoretical understanding of the interest alignment properties of long-term incentives. In addition, these results highlight the necessity of examining both proximal (specific behaviors) and distal (performance measures) effects of long-term incentives in compensation theorizing and research.

Original languageEnglish (US)
Title of host publicationAcademy of Management 2006 Annual Meeting: Knowledge, Action and the Public Concern, AOM 2006
StatePublished - 2006
Event66th Annual Meeting of the Academy of Management, AOM 2006 - Atlanta, GA, United States
Duration: Aug 11 2006Aug 16 2006

Other

Other66th Annual Meeting of the Academy of Management, AOM 2006
CountryUnited States
CityAtlanta, GA
Period8/11/068/16/06

Keywords

  • Executive compensation
  • M&A
  • TMT

ASJC Scopus subject areas

  • Management Information Systems
  • Management of Technology and Innovation

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    Devers, C. E., Holcomb, T. R., Holmes, R. M., & Cannella, A. A. (2006). Inside the black box: The contrasting effects of tmt long-term incentives on interest alignment. In Academy of Management 2006 Annual Meeting: Knowledge, Action and the Public Concern, AOM 2006