[Research Stories] Professor Oh Jong-min, Technology suitability between CEO and company and CEO labor market
- bizskk
- Hit473
- 2022-07-25
Technology suitability between CEO and company and CEO labor market
Importance of the CEO's expertise in specific technologies in establishing competitive remuneration
Published in the Journal of Financial and Quantitative Analysis, a world-renowned journal in finance
Oh Jong-min, a professor of business administration
What should companies do to hire competent CEOs? There will be a number of factors, but perhaps nothing is more effective than proposing competitive remuneration. In order to present an attractive 'market price', companies usually refer to the level of CEO remuneration of their competitors. CEO compensation benchmarking allows a company to present an appropriate market price to the CEO by considering the surrounding external options of the CEO it wants to hire. Traditionally, there were two main considerations for selecting benchmarking targets suggested by previous studies. It is said that companies belonging to the same industry group or with similar market capitalization are benchmarked. Existing studies on U.S. companies often interpreted them as part of the CEO'S self-serving behavior when companies that do not fall under the above two were selected as benchmarking target companies.
However, this interpretation is sometimes difficult to apply when looking at CEOs hired by global companies, including the United States. For example, Ferrari NV, a well-known supercar brand, recently cited Benedetto Vigna as CEO last summer because of his expertise in key technologies such as semiconductors used in automobiles. In this way, this paper studied whether the technical background of the CEO induces competition between companies for recruiting CEOs in the market and consequently affects the establishment of appropriate CEO remuneration.
This study began with a simple assumption that companies focusing on a particular technology would prefer CEOs with technical expertise in that technology. During their tenure, CEOs often accumulate overall expertise in the technology through various experiences in major technology fields held by companies. The research team tried to verify the hypothesis that the CEO's technical expertise can be an important asset not only for the current company but also for other companies with high demand for the specific technology, which will affect the establishment of competitive remuneration in the CEO employment market.
To this end, first of all, an empirical analysis was conducted on whether companies with similar technology tend to include companies with expertise in similar technologies when forming a benchmarking peer group to establish CEO remuneration. If expertise in a particular technology is a key factor in CEO selection, the research team determined that the peer group selected for CEO remuneration benchmarking is likely to include companies focusing on similar technologies to that company. As a result of the empirical analysis, it was found that the peer group selected for CEO remuneration benchmarking mainly includes companies that focus on technologies in similar fields as their own. In addition, the CEO of the company was found to receive competitive payment at a level close to the CEO of the benchmarking peer group, which focuses on similar technologies formed in this way. Finally, it was found that when the CEO changes jobs, the demand for technology tends to move to a place similar to the existing company. This shows that companies belonging to the same industry group or companies of a similar size and technologically similar firms are additional considerations in selecting companies to be benchmarked, and at the same time, technical suitability between the CEO and companies can be said to be the result of demonstrating that technological fit is an important determinant of the efficient wage level in the CEO job market.
In recent years, the importance of innovative technologies has been highlighted, with the fusion of various technologies gradually destroying traditional industries. In light of this trend, this study is meaningful in that based on the CEO's expertise in specific technologies, the remuneration determined in the CEO employment market according to the technology suitability between the CEO and the company can be interpreted as part of efficient contracting.
The study was published in 2022 in the Journal of Financial and Quantitative Analysis, a world-renowned journal in finance, and can be downloaded via the following link
: https://doi.org/10.1017/S0022109022000229
Source : https://www.skku.edu/skku/research/industry/researchStory_view.do?mode=view&articleNo=98268