Abstract
Nonfinancial measures (NFMs) are a common feature of strategic performance management frameworks. We examine the role of one widely used NFM: customer satisfaction, in one aspect of strategic performance management: CEO compensation schemes. Drawing on agency theory precepts, we hypothesize that the extent to which firms link CEO compensation to customer satisfaction is influenced by satisfaction's ability to act as a leading indicator of future profitability (lead indicator strength). We further hypothesize that the extent to which customer satisfaction's lead indicator strength influences the weighting of satisfaction in CEO compensation schemes has a positive influence on future shareholder value. Our empirical results offer strong support for both hypotheses and extend research on the use and efficacy of NFMs in CEO compensation schemes.
| Original language | English |
|---|---|
| Pages (from-to) | 826-844 |
| Number of pages | 19 |
| Journal | Strategic Management Journal |
| Volume | 35 |
| Issue number | 6 |
| DOIs | |
| Publication status | Published - Jun 2014 |
| Externally published | Yes |
Keywords
- agency theory
- CEO compensation
- customer satisfaction
- lead indicator strength
- nonfinancial measures
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