Motivating executives for the long run: executive compensation stickiness, long-term focus and the radicalness of corporate innovation

Abstract

Purpose Radical innovation is crucial for the long-term survival of firms, yet it remains challenging to achieve for most firms. To validate the theoretical rationale of executive compensation stickiness and link managerial cognition to corporate innovation, this study draws on the optimal innovation-motivating incentive scheme and the attention-based view to investigate how and when executive compensation stickiness is associated with the radicalness of corporate innovation. Design/methodology/approach Based on a sample of 984 Chinese A-share listed firms engaged in innovation activities between 2009–2016, this study tests its hypotheses using fixed-effect ordinary least squares (OLS) regressions and mediation tests with bootstrapping. Findings Executive compensation stickiness is positively associated with the radicalness of corporate innovation. This effect is mediated by executives' long-term focus of attention. Moreover, executive compensation stickiness is more strongly associated with the radicalness of corporate innovation when underperformance intensity is high, whereas underperformance duration does not appear to moderate this relationship. Originality/value This study identifies executive compensation stickiness as a risk-tolerant incentive arrangement associated with the radicalness of corporate innovation, and examines its underlying cognitive mechanism and boundary conditions. Thus, this study strengthens and extends the literature on optimal innovation-motivating incentive schemes, the attention-based view and radical innovation, while validating the theoretical rationale of executive compensation stickiness.