The role of CEO relative standing in acquisition behavior and CEO pay

TitleThe role of CEO relative standing in acquisition behavior and CEO pay
Publication TypeJournal Article
Year of Publication2015
AuthorsSeo J, Gamache DL, Devers CE, Carpenter MA
JournalStrategic Management Journal
Volume36
Issue12
Pagination1877-1894
Date PublishedDec
ISBN Number0143-2095
Accession NumberWOS:000363513600007
Abstract

In this study, we develop and test a theory of CEO relative pay standing. Specifically, we propose that CEOs with negative relative pay standing status (underpaid relative to comparison CEOs) will engage in acquisition activity, as a self-interested means of attempting to realign their pay with that of their peers. We further propose that, when CEOs with negative relative pay standing acquire, they will tend to finance those acquisitions more heavily with stock than cash, to mitigate the risk associated with those deals. Finally, we argue that acquisition activity will partially mediate the influence of CEO negative relative pay standing on subsequent CEO compensation increases; however, that pay growth will come primarily in the form of long-term incentive pay. Our results support our predictions. Copyright (c) 2014 John Wiley & Sons, Ltd.

DOI10.1002/smj.2316