Individual and organizational consequences of CEO claimed handicapping: What’s good for the CEO may not be so good for the firm

Abstract

Previous research on organizational impression management has focused on verbal accounts proffered by leaders in response to organizational-threatening events. The present studies examined the effectiveness of an anticipatory verbal tactic, claimed handicapping, in which CEOs warn stakeholders of factors that may adversely affect future firm performance. We studied the effect of two types of claimed handicapping on CEO compensation and firm value. One claimed handicap consisted of factors external to the firm whereas the other claimed handicap consisted of factors internal to the firm. In two very different research venues (an experiment and archival study), we found that, under certain conditions, claimed external handicapping had diametrically opposed effects on CEO compensation and firm value. Specifically, when prior firm performance was favorable, external claimed handicaps had a positive effect on CEO pay but a negative impact on firm value. Moreover, the results of both studies highlighted the need to distinguish between external claimed handicaps and internal claimed handicaps, in that all significant effects were produced by external rather than internal claimed handicaps. Contributions to theory and research on organization impression management, self-handicapping, and executive compensation, as well as cross-disciplinary implications, are discussed.