ALWAYS DESIRE MORE? CEO PERCEPTIONS OF RELATIVE COMPENSATION, RISK PROPENSITY, AND INNOVATION IN SMEs

Abstract

We study how the chief executive officers (CEOs) compensation perceptions and risk propensity influence exploratory innovation in small- and medium-sized enterprises (SMEs). Based on survey data collected from 381 CEOs of private SMEs in Colombia, we find that (1) CEO underpayment perceptions have a positively increasing relationship with exploratory innovation, (2) CEO overpayment perceptions have a positively decreasing relationship with exploratory innovation, and (3) CEOs’ risk propensity does not moderate these relationships. Our study informs small business managers, boards of directors, and policy makers on how compensation aspirations and comparisons serve as motives for exploratory behaviour. Our study also represents a unique attempt to capture CEOs’ perceptions of their compensation and explore their influence on strategic outcomes. Further, we underscore the need to extend social comparison theories to better understand how CEOs’ compensation and dispositional motives shape firms.