CEO and TMT Incentives and Organizational Ambidexterity

Abstract

We study the effects of senior executives’ incentive systems on firms’ abilities to exploit and explore simultaneously (i.e., to become ambidextrous). Perhaps surprisingly, given the importance and attention accorded to the role of executives in shaping organizational ambidexterity, CEO and TMT incentives have received scant consideration to date in this literature. Based on archival data and computer-aided textual analysis (CATA) of company filings from 176 manufacturing companies between the years 2006 and 2018, we find that firms headed by CEOs receiving lower performance-based pay demonstrate higher rates of ambidexterity. However, this effect is weaker for female than for male CEOs. Furthermore, we provide evidence that the overall configuration of CEO and TMT pay (and particularly the variance between their incentives) is important to understanding how executive compensation might enhance firm-level ambidexterity. By doing so, we contribute to the literature by (1) introducing incentives as a contextual antecedent of ambidexterity at the senior management level, (2) demonstrating that “inconsistent” senior team incentive systems (i.e., incentive heterogeneity between CEOs and TMTs) are associated with balanced strategic outcomes, and (3) showing that executive attributes and incentives act in tandem to influence strategic decisions.