Mixed Gambles in Product Recalls: How CEO Stock Options Drive Impression Management Tactics

Executive compensation is a key topic in management research, focusing on how firms use incentives to align CEOs' decisions with shareholders' interests. Yet, we know little about the influence of stock-option compensation-a major component of CEO pay-on CEO decisions facing adverse events involving multiple stakeholders. Analyzing U.S. medical device recalls between 2004 and 2017, we examine how stock options induce CEOs to protect their existing wealth while pursuing potential gains. We find that CEOs with greater current option wealth are more likely to adopt short-term impression management (IM) tactics, such as strategically timing recalls and maintaining silence in press releases, which can harm shareholders and stakeholders. In contrast, CEOs with higher prospective option wealth are less inclined to employ these tactics. Moreover, negative media scrutiny discourages CEOs with substantial current option wealth from using IM tactics, and encourages those with greater prospective option wealth to further avoid them. These findings highlight the powerful role of executive compensation, particularly stock options, in shaping CEO decisions facing adverse events.