The first set of results addresses the effect of relative power
in the CEO-board relationship on the likelihood of LTIP
adoption and subsequent implementation. In general, the
findings provide strong and consistent evidence that firms
with relatively influential CEOs are more likely to decouple
LTIP adoption and use. While agency theory contributes to a
partial understanding of this phenomenon by specifying the
personal preferences that could motivate non-use of formally
adopted LTIPs,such as CEO risk-aversion( Beatty and Zajac,
1994), it cannot explain why firms announce but do not use
LTIPs or why the separation is more likely to be found in
firms having more influential CEOs. Instead, this finding is
more consistent with a political perspective, in which CEOs
exercise influence subtly by encouraging the adoption of
LTIPs while discouraging or limiting their actual use. By
personally associating themselves with practices that display
concern for shareholders' interests, CEOs enhance their
legitimacy with stockholders and other stakeholders,
signalling board control and the absence of any agency
problem (Schlenker, 1980; Tedeschi and Reiss, 1981;
DiMaggio and Powell, 1983). Thus, CEOs with the ability to
influence the board to adopt but not use-or only limitedly
use-LTIPs can simultaneously enhance the legitimacy of
their formal compensation contract, while satisfying their
personal preferences for noncontingent compensation.