Determinants and Consequences of Chief Information Officer Equity Incentives

Abstract

Abstract The chief information officer (CIO) is responsible for bridging the gap between two critical domains—technology and business, making the CIO's job uniquely different from other executives. As digital technologies become increasingly important to firms' competitive success, boards of directors and senior executives seek to align the CIO role with overall firm's objectives. Agency theory suggests that one way to create the alignment between an executive's efforts and firm performance is to implement appropriate equity compensation incentives (i.e., those resulting from stock and stock options) tying the executive's wealth to firm value. To date, research does not address what factors a firm should consider when designing CIO incentives and how these incentives influence firm performance. To address this major gap, we examine both the antecedents and performance consequences of CIO equity incentives. We assess organizational, environmental, and individual factors that influence CIO equity incentives and find that environmental and organizational factors are more important than individual CIO characteristics in the determination of CIO equity incentives. We also find that firms that create higher CIO equity incentives realize greater subsequent accounting and market performance. Our research contributes to the IT personnel literature by showing how firms can use compensation policies to leverage the CIO role to enhance overall business performance.