How Incentives Shape Strategy: The Role of CMO and CEO Equity Compensation in Inducing Marketing Myopia

Martin Artz and Natalie Mizik, 2018, 18-105-03

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Myopic management is a serious problem and a threat to firms because it entails inefficient decision making, which leads to a decline in future firm performance. In this study, Martin Artz and Natalie Mizik examine the role personal compensation incentives of CMOs and CEOs play in inducing myopic marketing management.

They combine data from multiple sources (ExecuComp, Center for Research in Security Prices [CRSP], Compustat, and Thomson Reuters Insider Filing Data Feed). Their sample covers all public firms in these databases from 1993-2014. Their analyses use multiple methods designed to identify causal effects (e.g., inverse probability weighted regression adjustment, Heckman selection bias correction, endogenous treatment effects, control function, difference-in-differences), which allows for a causal interpretation of findings.


CEO equity incentives are largely unrelated to the incidence and severity of myopic marketing management. .

Contrary to the arguments that the presence of a CMO in the organization can help maintain customer focus and support for marketing departments, CMOs not only fail to prevent myopia, but further exacerbate the problem as the market-based (i.e., equity) portion of their personal compensation increases.

Further, consistent with the CMO’s personal enrichment motivation, CMOs take advantage of artificially inflated stock valuation by exercising more stock options and selling more of their personal equity holdings in the years when myopic marketing management occurs and is more severe.


In contrast to a popular pessimistic view in the marketing literature questioning the ability of CMOs to influence firm strategy, these findings suggest CMOs have a significant influence on marketing budgets and firm strategy. However, this study also challenges the belief in the CMO as a central force to mitigate marketing resource misallocation and as the dominant advocate for a long-run-focused marketing strategy.

On the contrary, these findings suggest that CMOs enable myopic marketing management and seek to derive personal gain when it occurs. They highlight the pitfalls and limitations of overreliance on equity in managerial compensation packages: Equity compensation can create perverse incentives for managers in their functional domain to engage in myopic practices.

What are the solutions to the myopic management problem? One proposal suggests firms should pay their executives based on stock price performance but defer the payout until after the executive’s retirement in order to reduce the effects of equity compensation and provide optimal investment incentives during the latter part of the CEO’s tenure. Another proposal calls for tying executive compensation to long-run-oriented performance metrics (e.g., customer satisfaction or brand equity). Yet another proposal advocates expanding disclosure of value-relevant non-financial performance indicators to curtail myopic management.

In April 2015, the SEC issued a “pay versus performance” proposal (it has just been moved from the 2017 SEC rulemaking agenda to the long-term action list by the new administration) to require greater disclosure on compensation and to draw a direct link to performance ( Under this proposal, companies would be required to disclose the relationship between executive pay and a company’s financial performance and to report executive compensation relative to their financial performance and relative to their peer group of firms. Will this solution help remedy the problem? The answer remains to be seen.

Martin Artz is Associate Professor of Management Accounting and Control at the Frankfurt School of Finance & Management, Germany. Natalie Mizik is Professor of Marketing and J. Gary Shansby Endowed Chair in Marketing Strategy, Foster School of Business, University of Washington.

The authors thank seminar participants at Goethe University, INSEAD, Northwestern University, Marketing Science Conference (Atlanta), Marketing Strategy Meets Wall Street Conference (Singapore), Theory + Practice in Marketing Conference (Kellogg School of Management), University of Georgia, University of Mannheim, University of Washington, and Washington State University for helpful comments. The first author gratefully acknowledges support from the Julius-Paul-Stiegler Memorial Foundation at the University of Mannheim.


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