Incentives that shape strategy: How CEO pay-for-performance steers competitive advantage

IF 3.4 3区经济学 Q1 ECONOMICS

Quarterly Review of Economics and Finance Pub Date : 2026-01-01 Epub Date: 2025-12-20 DOI:10.1016/j.qref.2025.102104

Chandra S. Mishra

{"title":"Incentives that shape strategy: How CEO pay-for-performance steers competitive advantage","authors":"Chandra S. Mishra","doi":"10.1016/j.qref.2025.102104","DOIUrl":null,"url":null,"abstract":"<div><div>This study examines how CEO pay-performance sensitivity (PPS) influences firms' competitive strategy choices among differentiation, cost leadership, and best-cost differentiation strategies. Using a multinomial logit model and controlling for firm and CEO characteristics, we find that the relationship between PPS and strategic choice varies systematically across different levels of PPS. Specifically, low PPS is associated with a greater likelihood of best-cost differentiation strategies, moderate PPS is linked to differentiation strategies, and high PPS correlates with cost leadership strategies. The study makes a novel contribution by demonstrating that executive compensation design has a broad and strategic impact on firm performance, steering firms toward distinct competitive positioning. By linking PPS to strategic positioning, we extend behavioral agency theory and contribute to emerging conversations about the strategic consequences of incentive systems. The results highlight that compensation committees must consider not only the strength but also the strategic implications of CEO incentives when designing pay structures.</div></div>","PeriodicalId":47962,"journal":{"name":"Quarterly Review of Economics and Finance","volume":"105 ","pages":"Article 102104"},"PeriodicalIF":3.4000,"publicationDate":"2026-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Quarterly Review of Economics and Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1062976925001450","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"2025/12/20 0:00:00","PubModel":"Epub","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}

引用次数: 0

Abstract

This study examines how CEO pay-performance sensitivity (PPS) influences firms' competitive strategy choices among differentiation, cost leadership, and best-cost differentiation strategies. Using a multinomial logit model and controlling for firm and CEO characteristics, we find that the relationship between PPS and strategic choice varies systematically across different levels of PPS. Specifically, low PPS is associated with a greater likelihood of best-cost differentiation strategies, moderate PPS is linked to differentiation strategies, and high PPS correlates with cost leadership strategies. The study makes a novel contribution by demonstrating that executive compensation design has a broad and strategic impact on firm performance, steering firms toward distinct competitive positioning. By linking PPS to strategic positioning, we extend behavioral agency theory and contribute to emerging conversations about the strategic consequences of incentive systems. The results highlight that compensation committees must consider not only the strength but also the strategic implications of CEO incentives when designing pay structures.

查看原文本刊更多论文

塑造战略的激励：CEO绩效薪酬如何引导竞争优势

本研究探讨CEO薪酬绩效敏感性（PPS）如何影响企业在差异化、成本领先和最佳成本差异化策略之间的竞争策略选择。利用多项logit模型，在控制企业和CEO特征的情况下，我们发现PPS与战略选择之间的关系在不同层次的PPS之间存在系统性差异。具体来说，低PPS与最佳成本差异化战略的可能性较大相关，中等PPS与差异化战略相关，高PPS与成本领先战略相关。该研究通过证明高管薪酬设计对企业绩效具有广泛的战略影响，引导企业走向独特的竞争定位，做出了新颖的贡献。通过将PPS与战略定位联系起来，我们扩展了行为代理理论，并为有关激励制度战略后果的新兴对话做出了贡献。研究结果表明，薪酬委员会在设计薪酬结构时，不仅要考虑CEO激励的力度，还要考虑其战略意义。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

求助全文

约1分钟内获得全文求助全文

来源期刊

Quarterly Review of Economics and Finance ECONOMICS-

CiteScore

6.00

自引率

2.90%

发文量

118

期刊介绍： The Quarterly Review of Economics and Finance (QREF) attracts and publishes high quality manuscripts that cover topics in the areas of economics, financial economics and finance. The subject matter may be theoretical, empirical or policy related. Emphasis is placed on quality, originality, clear arguments, persuasive evidence, intelligent analysis and clear writing. At least one Special Issue is published per year. These issues have guest editors, are devoted to a single theme and the papers have well known authors. In addition we pride ourselves in being able to provide three to four article "Focus" sections in most of our issues.