CMO equity incentive and shareholder value: Moderating role of CMO managerial discretion ☆

Chief marketing officers (CMOs) are the marketing leaders in their respective firms and are responsible for creating shareholder value. To incentivize CMOs to focus on shareholders' interests, an increasing number of firms are compensating their CMOs with equity. This study examines the impact of CMO equity incentive on shareholder value and introduces three different forms of managerial discretion given to CMOs as contingencies determining when the impact of CMO equity incentive is more or less. Results based on CMO compensation data from 1993 to 2009 confirm the value relevance of CMO equity incentive above and beyond equity incentive allocated to other TMT members. Furthermore, the results reveal support for the moderating effect of financial, strategic, and operational forms of CMO managerial discretion. Theoretically, the findings identify hitherto unrecognized boundary conditions determining when the impact of CMO equity on shareholder value is higher or lower and address several limitations characterizing past research on the topic. Managerially, the results can guide firms in structuring CMO compensation and discretion in ways that optimize the effect of CMOs on shareholder value.