The impact of ceo future focus and long-term incentives on strategic flexibility: Towards person-pay congruence

Abstract

Strategic flexibility enables organisations to adapt to changing circumstances in a proactive or reactive manner. Although several studies show that it increases company performance, more research on the drivers and barriers to strategic flexibility is needed. In response to that call, we focus on the CEO who plays a crucial role in shaping and implementing the strategy of the organisation. One line of research established in the strategic flexibility literature studies CEO cognition to explain how CEOs differ in the extent to which they build strategically flexible organisations. Accordingly, we put forward CEO future focus as a relevant antecedent of strategic flexibility. However, we argue that this personal trait should be studied in tandem with CEO compensation, as it is their combination that determines the CEO’s strategic choices. The main objective of this paper is to understand how person-pay congruence can be obtained in the best interest of strategic flexibility by integrating CEO compensation and the upper echelons perspective. We argue that a stronger CEO future focus and high long-term incentives both increase strategic flexibility. This analysis will enable us to answer the question on what matters most: person or pay? Second, we investigate whether the person-pay interactions between CEO future focus and long-term incentives are synergistic, additive or buffering in nature. We will test our hypotheses with a panel dataset of the 600 largest listed European firms for the period 2014-2019.