Determinants and Consequences of Chief Information Officer Equity Incentives

43 Pages Posted: 21 Jun 2018

See all articles by Juan Manuel Sanchez

Juan Manuel Sanchez

University of Texas at San Antonio

Rod Smith

Cal State University Long Beach

Vernon J. Richardson

University of Arkansas at Fayetteville

Pankaj Setia

University of Arkansas - Department of Information Systems

Date Written: June 6, 2018

Abstract

The chief information officer (CIO) is responsible for bridging the gap between two critical domains—technology and business, making the CIO’s job uniquely different from other executives. As digital technologies become increasingly important to firms’ competitive success, boards of directors and senior executives seek to align the CIO role with overall firm’s objectives. Agency theory suggests that one way to create the alignment between an executive’s efforts and firm performance is to implement appropriate equity compensation incentives (i.e., those resulting from stock and stock options) tying the executive’s wealth to firm value. To date, research does not address what factors a firm should consider when designing CIO incentives and how these incentives influence firm performance. To address this major gap, we examine both the antecedents and performance consequences of CIO equity incentives. We assess organizational, environmental, and individual factors that influence CIO equity incentives and find that environmental and organizational factors are more important than individual CIO characteristics in the determination of CIO equity incentives. We also find that firms that create higher CIO equity incentives realize greater subsequent accounting and market performance. Our research contributes to the IT personnel literatures by showing how firms can use compensation policies to leverage the CIO role to enhance overall business performance.

Keywords: CIO compensation, Chief Information Officer, CIO incentives, firm performance, strategic alignment

JEL Classification: G00, G32, M1, M52, M54, J23, J24, M15

Suggested Citation

Sanchez, Juan Manuel and Smith, Rodney E. and Richardson, Vernon J. and Setia, Pankaj, Determinants and Consequences of Chief Information Officer Equity Incentives (June 6, 2018). Available at SSRN: https://ssrn.com/abstract=3192082 or http://dx.doi.org/10.2139/ssrn.3192082

Juan Manuel Sanchez (Contact Author)

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

Rodney E. Smith

Cal State University Long Beach ( email )

Long Beach, CA 90840
United States
562-985-5421 (Phone)

Vernon J. Richardson

University of Arkansas at Fayetteville ( email )

401 WCOB
Fayetteville, AR 72701
United States

Pankaj Setia

University of Arkansas - Department of Information Systems ( email )

United States

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