CEO compensation, portfolio holdings and strategic investments

Richard A. Lord, Yoshie Saito, Joseph R. Nicholson, Michael T. Dugan

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


Purpose: The purpose of this paper is to examine the relationship of CEO compensation plans and the risk of managerial equity portfolios with the extent of strategic investments in advertising, capital expenditures and research and development (R&D). The elements of compensation are salary, bonuses, options and restricted stock grants. The authors proxy the design of CEO equity portfolios by the price performance sensitivity of the holdings and the portfolio deltas. Design/methodology/approach: The authors use the components of executive compensation and portfolio risk as the dependent variables, regressing these against measures for the level of strategic investment. The authors test for non-linear relationships between the components of CEO compensation and strategic investments. The sample is a broad cross-section from 1992 to 2016. Findings: The authors find strong support for non-linear relationships of capital expenditures and R&D with CEO bonuses, option grants and restricted stock grants. There are very complex relationships between the components of executive compensation and R&D expenditures, but little evidence of a relationship with advertising expenditures. The authors also find strong complex relationships in the design of CEO equity portfolios with advertising and R&D. Originality/value: Little earlier research has considered advertising, capital expenditures and R&D in a unified framework. Also, testing for non-linear associations provides much greater insight into the relationship between the components of executive compensation and strategic investment. The findings represent a valuable incremental contribution to the executive compensation literature. The results also have normative policy implications for compensation committees’ design of optimal annual CEO compensation packages to incentivize or discourage particular strategic investment behavior.

Original languageEnglish
Pages (from-to)137-160
Number of pages24
JournalJournal of Financial Economic Policy
Issue number1
StatePublished - 17 Apr 2020


  • Advertising
  • CEO compensation
  • Compensation packages
  • Strategic investment


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