Skip to main content
SpringerLink
Log in

CEOs’ Diverse Career Experiences and the Effectiveness of Compensation Contracts: Evidence from Compensation Stickiness

  • Published:
Journal of Systems Science and Systems Engineering Aims and scope Submit manuscript

Abstract

CEO compensation stickiness represents an important indicator to measure the effectiveness of compensation contracts. This study uses CEO career experience data and compensation stickiness data from Shanghai and Shenzhen A-share listed companies from 2015 to 2020 to investigate the compensation contracts’ effectiveness of CEOs with diverse career experiences. The findings are as follows: 1) Compensation stickiness is more pronounced for CEOs with diverse career experiences. According to the mechanism test, these CEOs with diverse career experiences can obtain compensation incentives by reducing corporate uncertainty perception and improving total factor productivity. This approach leads to increased compensation stickiness and the effectiveness of compensation contracts. CEOs with diverse career experiences may receive excess compensation by raising agency costs, which intensifies compensation stickiness and weakens the effectiveness of compensation contracts. 2) Compensation stickiness of CEOs with diverse career experiences is more significant in companies with lower investor protection, which brings about less effective compensation contracts. In contrast, in companies with higher diversification, the compensation stickiness of CEOs with diverse career experiences is more significant, which delivers more effective compensation contracts. The conclusions deepen the research of CEO compensation contracts and provide a helpful reference for CEO compensation management practices.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Data Availability

The datasets generated during and/or analysed during the current study are available from the corresponding author on reasonable request.

References

  • Abernethy M A, Kuang Y F, Qin B (2019). The relation between strategy, CEO selection, and firm performance. Contemporary Accounting Research 36(3): 1575–1606.

    Article  Google Scholar 

  • Aggarwal R K, Samwick A A (1999). The other side of the trade-off: The impact of risk on executive compensation. Journal of Political Economy 107(1): 65–105.

    Article  Google Scholar 

  • Banker R D, Byzalov D, Ciftci M, Mashruwala R (2014). The moderating effect of prior sales changes on asymmetric cost behavior. Journal of Management Accounting Research 26(2): 221–242.

    Article  Google Scholar 

  • Brockman P, Lee H S, Salas J M (2016). Determinants of CEO compensation: Generalist-specialist versus insider-outsider attributes. Journal of Corporate Finance, 39: 53–77.

    Article  Google Scholar 

  • Chen C X, Lu H, Sougiannis T (2012). The agency problem, corporate governance, and the asymmetrical behavior of selling, general, and administrative costs. Contemporary Accounting Research 29(1): 252–282.

    Article  CAS  Google Scholar 

  • Chen G, Huang S, Philipp M D, Mindruta D (2020a). Generalist versus specialist CEOs and acquisitions: Two-sided matching and the impact of CEO characteristics on firm outcomes. Strategic Management Journal 42(6): 1184–1214.

    Article  Google Scholar 

  • Chen H W, Yang D G, Zhang J H, Zhou H Y (2020b). Internal controls, risk management, and cash holdings. Journal of Corporate Finance 64.

  • Chen X D, Peng Y L, Wu X J (2014). A study on the characteristics of CEO compensation stickiness in Chinese listed companies. Journal of Management Science 27(3): 61–74.

    Google Scholar 

  • Custódio C, Ferreira M A, Matos P (2013). Generalists versus specialists: Lifetime work experience and chief executive officer pay. Journal of Financial Economics 108(2): 471–492.

    Article  Google Scholar 

  • Custódio C, Ferreira M A, Matos P (2017). Do general managerial skills spur innovation? Management Science 65(2): 459–476.

    Article  Google Scholar 

  • Di Giuli A, Laux P A (2022). The effect of media-linked directors on financing and external governance. Journal of Financial Economics 145(2): 103–131.

    Article  Google Scholar 

  • Edmans A, Gabaix X (2016). Executive compensation: A modern primer. Journal of Economic Literature 54(4): 1232–1287.

    Article  Google Scholar 

  • El-Khatib R, Fogel K, Jandik T (2015). CEO network centrality and merger performance. Journal of Financial Economics 116(2): 349–382.

    Article  Google Scholar 

  • Ertimur Y, Rawson C, Rogers J L, Zechman S L C (2018). Bridging the gap: Evidence from externally hired CEOs. Journal of Accounting Research 56(2): 521–579.

    Article  Google Scholar 

  • Evdokimov E, Hanlon D, Lim K Y (2021). Do generalist CEOs magnify boardroom backscratching? Journal of Business Ethics 181(1): 221–247.

    Article  Google Scholar 

  • Fang J X (2009). Is there stickiness in the compensation of executives of listed companies in China? Economic Research Journal 44(3): 110–124.

    Google Scholar 

  • Ferreira D, Sah R K (2012). Who gets to the top? Generalists versus specialists in managerial organizations. The Rand Journal of Economics 43(4): 577–601.

    Article  Google Scholar 

  • Gaver J J, Gaver K M (1998). The relation between nonrecurring accounting transactions and CEO cash compensation. The Accounting Review 73(2): 235–253.

    Google Scholar 

  • Goergen M, Renneboog L, Zhao Y (2019). Insider trading and networked directors. Journal of Corporate Finance 56: 152–175.

    Article  Google Scholar 

  • Gounopoulos D, Pham H (2018). Specialist CEOs and IPO survival. Journal of Corporate Finance 48: 217–243.

    Article  Google Scholar 

  • Hambrick D C, Mason P A (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review 9(2): 193–206.

    Article  Google Scholar 

  • He Y, Yu W L, Yang M Z (2019). CEO’s composite career experience, corporate risk-taking, and firm value. China Industrial Economics (9): 155–173.

  • He Y, Yu W L, Dai Y Z, Wang Y Y (2019). Executive career experience and corporate innovation. Management World 35(11): 174–192.

    Google Scholar 

  • He Y, Tang X Z, Li W Q (2023). “Pricing” and “bargaining”: How CEO’s compound career experience affects executive team pay gap. Research on Economics and Management 44(4): 108–130.

    Google Scholar 

  • Jackson S B, Lopez T J, Reitenga A L (2008). Accounting fundamentals and CEO bonus compensation. Journal of Accounting and Public Policy 27(5): 374–393.

    Article  Google Scholar 

  • Karolyi G A, Kim D, Liao R (2020). The theory and practice of investor relations: A global perspective. Management Science 66(10): 4746–4771.

    Article  Google Scholar 

  • Kim J, Yang D, Lee M (2017). CEO tenure, market competition, and sticky pay-without-performance as the extraction of rents. Asia-Pacific Journal of Financial Studies 46(2): 246–275.

    Article  Google Scholar 

  • Kwon S Y, Yi H S (2017). Do social ties between CEOs and engagement audit partners affect audit fees and audit quality? Auditing: A Journal of Practice and Theory 37(2): 139–161.

    Article  Google Scholar 

  • Leone A J, Wu J S, Zimmerman J L (2006). Asymmetric sensitivity of CEO cash compensation to stock returns. Journal of Accounting and Economics 42(1–2): 167–192.

    Article  Google Scholar 

  • Levinsohn J, Petrin A (2003). Estimating production functions using inputs to control for unobservables. Review of Economic Studies 70(2): 317–342.

    Article  Google Scholar 

  • Lu Z, Abeysekera S, Li H (2016). Executive compensation stickiness and peer group benchmarks: Evidence from Chinese firms. International Journal of Business and Finance Research 9(5): 25–36.

    Google Scholar 

  • Ma Z M, Ruan L F, Wang D, Zhang H (2021). Generalist CEOs and credit ratings. Contemporary Accounting Research 38(2): 1009–1036.

    Article  Google Scholar 

  • Ma Z, Wang R, Zhou K (2021). Generalist CEOs and audit pricing. Auditing: A Journal of Practice and Theory 40(4): 123–147.

    Article  Google Scholar 

  • Meng X Z, Zhang J R, Bai X L (2018). The relationship between foreign CEO career experience, tenure, and firm business strategy change. Business Review 30(8): 168–181.

    Google Scholar 

  • Mishra D R (2014). The dark side of CEO ability: CEO general managerial skills and cost of equity capital. Journal of Corporate Finance 29: 390–409.

    Article  Google Scholar 

  • Murphy K J (2013). Regulating banking bonuses in the European Union: A case study in unintended consequences. European Financial Management 19(4): 631–657.

    Article  Google Scholar 

  • Obeng V A, Ahmed K, Miglani S (2020). Integrated reporting and earnings quality: The moderating effect of agency costs. Pacific-Basin Finance Journal 60: 101285.

    Article  Google Scholar 

  • Purkayastha A, Pattnaik C, Pathak A A (2022). Agency conflict in diversified business groups and performance of affiliated firms in India: Contingent effect of external constraint and internal governance. European Management Journal 40(2): 283–294.

    Article  Google Scholar 

  • Shen Y F, Li P G (2010). A study on the relationship between government salary limit orders and executive compensation, performance, and luck of state-owned enterprises. China Industrial Economics 26(11): 130–139.

    Google Scholar 

  • Sun S M, Zhang H N (2021). Research on the formation mechanism and transmission path of executive compensation stickiness: Based on the perspective of external fairness of compensation. Business Review 33(10): 195–207.

    CAS  Google Scholar 

  • Sun S M, Zhang H N, Ma Z Y (2021). A study on the mechanism of executive compensation stickiness formation from the perspective of compensation contract: An interpretation based on WSR methodology. Business Review 33(5): 134–141.

    Google Scholar 

  • Wang X H, Gu X (2020). The causes of CEO compensation stickiness revisited: An empirical analysis based on private manufacturing listed companies. Journal of Chongqing University (Social Science Edition) 26(4): 93–111.

    Google Scholar 

  • Wu H M, Wang J, Mai S (2017). Diversification, bank credit, and commercial credit provision: On financing constraints and the impact of the business cycle. Business Review 29(10): 223–233.

    Google Scholar 

  • Xu Y, Xu N, Chan K C, Li Z (2021). Generalist vs. specialist: Who are better acquirers? Journal of Corporate Finance 67(2): 101915.

    Article  Google Scholar 

  • Yang S (2022). Comment letters on annual reports: Evidence from an emerging market. Accounting Horizons 36(3): 189–210.

    Article  Google Scholar 

  • Yu Z, Xiao Y, Li J P (2021). Firm-level perception of uncertainty and innovation activity: Textual evidence from China’s A-share market. Pacific-Basin Finance Journal 68: 101555.

    Article  Google Scholar 

  • Zhang A M, Sang Y Y, Lu Y S (2016). Political connection, property right nature and executive compensation stickiness: Empirical evidence from Shanghai and Shenzhen A-share listed companies. Accounting and Economic Research 30(2): 54–66.

    Google Scholar 

  • Zhang H N, Sun S M, Ma Z Y (2019). Research on the formation mechanism of executive compensation stickiness: Based on the hollowing out perspective. Accounting Research 4: 65–73.

    ADS  Google Scholar 

  • Zhao Z Y, Yang Q, Chen J B (2018). Generalist or specialist: CEO competency structure and firm innovation. Management World 34(2): 123–143.

    Google Scholar 

  • Zhu J L, Shen Y, Lu M H, Xu G H (2023). Does small and medium shareholders’ participation in governance enhance the effectiveness of compensation contracts: Evidence from executive compensation stickiness. Nankai Business Review forthcoming.

Download references

Acknowledgments

The authors thank the Editor and the anonymous reviewers for their constructive comments, which significantly improve the quality of this paper. This work is supported by the National Social Science Fund of China, under grant No.21BGL017.

Author information

Authors and Affiliations

  1. School of Business Administration, Northeastern University, Shenyang, 110169, China

    Shimin Sun, Yongheng Wang, Yawen Wang & Mengyu Mao

Authors
  1. Shimin Sun
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Yongheng Wang
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Yawen Wang
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Mengyu Mao
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Yongheng Wang.

Ethics declarations

The authors declare no conflict of interest.

Additional information

Shimin Sun is a professor in the School of Business Administration at Northeastern University, China. She received her Ph.D from Northeastern University in 2006. Her research interests include management accounting and financial management. Her work has been published in Chinese journals such as Accounting Research, Business Review, etc.

Yongheng Wang is a doctoral candidate in the School of Business Administration at Northeastern University, China. He received his Master’s degree in business administration (2021) at Northeastern University, China. His research interests include corporate governance and manager incentives.

Yawen Wang is a doctoral candidate in the School of Business Administration at Northeastern University, China. She received her Bachelor’s degree in accounting (2019) at Northeastern University, China. Her research interests include corporate governance and capital market.

Mengyu Mao is a doctoral candidate in the School of Business Administration at Northeastern University, China. He received his Master’s degree in business administration (2021) at Northeastern University, China. His research interests include self-leadership and proactive behaviors. His work has been published in Journal of Business Research.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Sun, S., Wang, Y., Wang, Y. et al. CEOs’ Diverse Career Experiences and the Effectiveness of Compensation Contracts: Evidence from Compensation Stickiness. J. Syst. Sci. Syst. Eng. 33, 52–76 (2024). https://doi.org/10.1007/s11518-024-5589-9

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11518-024-5589-9

Keywords

Search

Navigation