Risk or Reward? CEO Option Compensation and Firm Innovation Outcomes

This study investigates the relationship between Chief Executive Officer (CEO) option incentives and corporate innovation output, with a particular emphasis on performance variations across different contexts. In the intensely competitive contemporary market, enterprise innovation is recognized as a critical driver for sustaining competitive advantage. By analyzing data from U.S. listed companies spanning 1992 to 2021, this research employs a Poisson regression model to empirically assess the correlation between the intensity of option incentives and the frequency of patent applications. The findings reveal a positive correlation between CEO option incentives and corporate innovation output. Such incentives not only increase the number of patent applications but also foster high-quality innovation outcomes. This effect is especially pronounced among male CEOs and firms exhibiting strong profitability. The study provides new insights into the intricate relationship between CEO incentive structures and innovation activities, offering policy implications for optimizing executive compensation frameworks to bolster enterprises’ long-term innovation capacities. It underscores that, in devising incentive mechanisms, firms should account for the personal attributes of CEOs and the financial condition of the enterprise to effectively stimulate innovative vigor. These findings bear significant policy implications for enhancing the sustained innovation capabilities of enterprises and advancing high-quality economic development, while also offering strategic insights for cultivating an innovative nation.