Events

Dr. Shelby Gai
Assistant Professor in Management
Eli Broad College of Business
Michigan State University

While research examining the motivation behind CEO goal attainment has often focused on monetary incentives, this study analyzes the social factors motivating CEO behavior. Drawing on self-determination theory, we consider how differences between the CEO and the board may motivate the former to engage in compensatory actions—defined as attempts to overcome feelings of inferiority or inadequacy by overperforming—due to the need for relatedness. We identify three dimensions of difference that could lead to CEO compensatory action in the form of goal over-attainment: 1) demographic differences; 2) occupational differences; and 3) status differences. We also address the possible consequences of CEO compensatory action by examining board responses in the form of ratcheting up subsequent performance targets. Bringing in research from the social identity perspective, we expect that compensating attempts by the CEO will lead to backlash such that boards will increase subsequent targets, and the likelihood for this backlash will be higher for CEOs that reflect one of the three difference dimensions. We test our hypotheses using an original dataset consisting of nearly 1000 firms from 2006-2019, and discuss the implications of our theoretical perspective and supportive empirical findings for future research on corporate governance, CEO/Board relationships, and compensatory actions.