The moderating effect of CEO narcissism on pay-performance sensitivity
DOI:
https://doi.org/10.1590/1808-057x20241909.enKeywords:
corporate governance, pay-performance sensitivity, CEO narcissism, personality traitsAbstract
This study aims to examine whether the Chief Executive Officer (CEO) narcissism has a moderating effect on pay-performance sensitivity. We fill a gap in the existing literature, which overlooks the behavioral aspects of agents in the design of executive compensation plans, by providing evidence of the moderating effect of CEO narcissism on pay-performance sensitivity. We shed light on the fact that shareholders and potential investors might face higher agency costs when investing in firms led by narcissistic CEOs, considering that narcissistic CEOs tend to receive higher levels of compensation than their peers, regardless of the company’s performance. This study also has implications for board members and recruiters, who may take this psychological aspect into account when proposing compensation schemes to CEOs. The results extend the prior discussion on low pay-performance sensitivity (or its non-significance) by suggesting that this might be partially attributed to the psychological characteristics of CEOs, which play a role in the design of executive compensation. A sample of 1,057 non-financial U.S. firms (8,869 firm-year observations) during the period 2002-2018 was analyzed using system generalized method of moments (GMM-SYS) regressions due to the endogenous relationship between CEO compensation and firm performance. The main results show that CEO narcissism reduces the association between CEO compensation and firm performance, supporting the prediction that narcissism can be viewed as a “dark side” in the design of executive compensation plans. This finding is robust to alternative measures of pay-performance sensitivity, and further robustness checks indicate that our results are not driven by CEO overconfidence. Therefore, this study contributes to the literature by providing, to the best of our knowledge, the first empirical evidence of the moderating effect of CEO narcissism on pay-performance sensitivity.
Downloads
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Yuri Gomes Paiva Azevedo, Silvio Hiroshi Nakao
This work is licensed under a Creative Commons Attribution 4.0 International License.
The content of the article(s) published in the RC&F are of the entire liability of the authors, including with regard to the truth, updating and accuracy of data and information. The authors shall assign the rights in advance to the Department of Accounts and Actuarial Sciences of the FEA/USP, which shall permit the publication of extracts or of the whole, with prior permission, provided that the source is cited (Creative Commons – CCBY).
RC&F shall not charge a fee for the submission of articles. The submission of articles to RC&F shall imply that the author(s) authorizes/authorize its publication without the payment of author’s rights.
The submission of articles shall authorize the RC&F to adjust the text of the article(s) to their publication formats and if necessary, to make spelling, grammar and regulatory changes.
