Margaret A. Abernethy, Yunhe Dong, Yu Flora Kuang, Bo Qin, Xing Yang
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Abstract
We examine whether pay differentials between the chief executive officer (CEO) and vice presidents (VPs) can be explained by firms’ strategic priorities. We find that firms that pursue prospector-type strategies have a larger CEO−VP difference in equity compensation. We argue that such a pay differential relates to the relative authority that CEOs have in strategic decision-making, and we find that authority allocation based on a firm’s strategic priorities is consistent with the relative ability of the CEO vis-à-vis the VPs. Our results remain consistent after considering alternative explanations including CEO power, risk-taking incentives, and tournament incentives among VPs. Further analyses reveal that a large CEO−VP equity pay differential enhances firm value for prospector-type firms, and that shareholders and proxy advisors tend to incorporate firm strategy in their say-on-pay votes and proxy recommendations.
期刊介绍：
Devoted to the advancement of accounting knowledge, it provides a forum for the publication of high quality accounting research manuscripts. The journal acknowledges its European origins and the distinctive variety of the European accounting research community. Conscious of these origins, European Accounting Review emphasises openness and flexibility, not only regarding the substantive issues of accounting research, but also with respect to paradigms, methodologies and styles of conducting that research. Though European Accounting Review is a truly international journal, it also holds a unique position as it is the only accounting journal to provide a European forum for the reporting of accounting research.
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