CEO compensation and firm competitive behavior: Empirical evidence from the U.S. pharmaceutical industry

Executive compensation is one of the most critically evaluated aspects of a firm. Driving this attention is the debate into what exactly are the consequences of executive pay. Since a majority of prior compensation research has aggregated industries into a single omnibus sample, it has been difficult to detect compensation effects that are likely industry specific. Accordingly, we focus on a high technology industry and examine how CEO incentive compensation affects firm competitive behavior. Utilizing a sample of U.S. pharmaceutical firms, we find that both short- and long-term incentives of a CEO are positively related to firm competitive aggressiveness. Moreover, our results show a positive relationship between long-term incentives of the top executive and the diversity of competitive moves undertaken by the firm. This study contributes to technology management, compensation, and strategy literatures and generates interesting possibilities for future research.