How Incentives Shape Strategy: The Role of CMO and CEO Compensation in Inducing Marketing Myopia
53 Pages Posted: 28 Dec 2017
Date Written: December 22, 2017
We examine the role personal compensation incentives of CMOs and CEOs play in inducing myopic marketing management. We find that CEO equity incentives are largely unrelated to the incidence and severity of myopic marketing management. CMO equity compensation, on the other hand, is highly predictive of the incidence and severity of myopic marketing management. Contrary to the arguments that the presence of a CMO in the organization can help maintain customer focus and support for marketing departments, we find that CMOs not only fail to prevent myopia, but further exacerbate the problem as the market-based (i.e., equity) portion of their personal compensation increases. Our analyses utilizing multiple methods allow for a causal interpretation of these findings. Consistent with the CMO’s personal enrichment motivation we also find that CMOs take advantage of artificially inflated stock valuation by exercising more stock options and selling more of their personal equity holdings in the years when myopic marketing management occurs. Our findings highlight the pitfalls and limitations of overreliance on equity in managerial compensation packages.
Keywords: Executive Compensation, Equity Incentives, CMO, Myopic Marketing Management, Endogeneity, IPWRA, Endogenous Treatment Effects, Control Function, Difference-In-Differences
JEL Classification: M12, M31, M52
Suggested Citation: Suggested Citation