Do CMO Incentives Matter? An Empirical Investigation of CMO Compensation and its Impact on Firm Performance

Management Science, Forthcoming

53 Pages Posted: 30 Nov 2015 Last revised: 15 Sep 2016

See all articles by Naresh Bansal

Naresh Bansal

Saint Louis University - Department of Finance

Kissan Joseph

University of Kansas - School of Business

Minghui Ma

State University of New York at New Paltz

M. Babajide Wintoki

University of Kansas - School of Business

Date Written: November 28, 2015

Abstract

Despite growing interest in various facets of the Chief Marketing Officer (CMO) position, there is very little research on CMO compensation. Accordingly, we set out to investigate the determinants of CMO compensation and its effect on firm performance. Employing the lens of agency theory, we hypothesize that the CMO’s marginal productivity will positively impact the amount of total compensation as well as the extent of performance-based compensation in the CMO’s compensation contract. Moreover, we hypothesize that deviations in contracting elements from predicted levels will adversely impact firm performance. Analyzing a sample of 9,230 firm-year observations over the period 1992-2013, we find that CMOs employed at firms with high advertising and R&D intensity, and operating in competitive product markets, command larger amounts of total compensation. Moreover, a greater proportion of their compensation is market-based, with heightened sensitivity to movements in the firm’s stock price. We also find that deviations in CMO compensation elements have an adverse impact on operating performance (ROA), earnings surprises, and stock returns. Specifically, a 10% deviation in market-based compensation from predicted levels reduces ROA by 0.28%, dampens earnings surprises by 0.19%, and degrades annualized stock returns by 2.4%.

Keywords: Chief Marketing Officer, CMO, CMO Compensation, Agency Theory, Firm Performance

Suggested Citation

Bansal, Naresh and Joseph, Kissan and Ma, Minghui and Wintoki, Modupe Babajide, Do CMO Incentives Matter? An Empirical Investigation of CMO Compensation and its Impact on Firm Performance (November 28, 2015). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2696497 or http://dx.doi.org/10.2139/ssrn.2696497

Naresh Bansal

Saint Louis University - Department of Finance ( email )

John Cook School of Business
St. Louis, MO 63108
United States
314-977-7204 (Phone)

Kissan Joseph

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States
785-864-7535 (Phone)
785-864-5328 (Fax)

Minghui Ma

State University of New York at New Paltz ( email )

1 Hawk Drive
New Paltz, NY 12561-2443
United States

Modupe Babajide Wintoki (Contact Author)

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

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