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ItemBehavioural Agency and Firm Productivity: Revisiting the Incentive Alignment Qualities of Stock OptionsZolotoy, L ; O'Sullivan, D ; Martin, GP (WILEY, 2022-11-01)Drawing on behavioural agency theory, we revisit the incentive alignment qualities of stock options. Using behavioural agency’s logic, we theorize that chief executive officers (CEOs) are likely to perceive efforts directed at firm productivity as a means of protecting their option wealth (the value of previously awarded stock options). Our reasoning suggests that CEO option wealth positively influences firm productivity and that productivity mediates the relationship between CEO option wealth and firm value. Our theory also points to boundary conditions at the CEO level and the firm level. Our study advances research on the utility of stock options by focusing on effort and productivity as the mechanism through which option incentives affect CEO behaviours. We demonstrate that option risk bearing can align CEO–shareholder interests.
ItemThe Social Context of Compensation Design: Social Norms and the Impact of Equity IncentivesZolotoy, L ; O'Sullivan, D ; Martin, G (Wiley, 2018)Drawing on arguments from institutional theory, this study examines how social norms—specifically, local religious social norms—affect the motivational impact of equity‐based incentives. We test our model using longitudinal data on local religious norms, CEO equity incentives, and firm value. Consistent with our theoretical predictions, we find that local religious social norms attenuate the impact of CEO option incentives upon firm value. Furthermore, we find that the attenuating impact of local religious social norms increases with managerial discretion. These findings provide valuable insight for human resource professionals aiming to design compensation contracts for employees that are aligned with firm goals. Our findings also contribute to research on the motivational effect of equity incentives by demonstrating the importance of considering the social context in which executives are embedded.
ItemStakeholder Agency Relationships: CEO Stock Options and Corporate Tax AvoidanceZolotoy, L ; O'Sullivan, D ; Martin, GP ; Wiseman, RM (Wiley, 2021-05-01)Infusing stakeholder agency theory with insights from behavioural agency theory, we describe a frame‐dependent relationship between CEO stock option incentives and tax avoidance. Our theoretical framework highlights the role of competing shareholder demands in providing a salient reference point for a CEO contemplating the implications of tax avoidance for their stock option wealth. In a study of 2,573 publicly listed U.S. firms between 1993 and 2014, we show that the implications of CEO stock option incentives are contingent on whether the firm’s effective tax rate is anticipated to be below or above the tax rate of peer firms – an outcome that the CEO can cast as balancing stakeholder demands. Consistent with our theoretical reasoning, we also show that, both above and below this reference point, the implications of option incentives for corporate tax avoidance are amplified by the level of activist institutional ownership and attenuated by the CEO’s ability to unwind their bond with shareholders through hedging. In doing so, our study offers an impetus for a broader stakeholder approach to governance research examining CEO incentive alignment.