INSIDE THE BLACK BOX: THE CONTRASTING EFFECTS OF TMT LONG-TERM INCENTIVES ON INTEREST ALIGNMENT. Conference Paper uri icon

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.

published proceedings

  • Academy of Management Proceedings

author list (cited authors)

  • Devers, C. E., Holcomb, T. R., Holmes, R. M., & Cannella, A. A.

citation count

  • 1

complete list of authors

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

publication date

  • August 2006