The effects of increased managerial discretion on top executive team composition, compensation and attention: The implications for strategic change and performance

The role of the top executives in organizational adaptation is crucial. At the boundary between an organization and its environment, the executives mediate the environmental demands and the internal organization through substantive and symbolic action and strategic decision making. When environments shift, existing competencies and decision making processes no longer match environmental conditions, necessitating a prompt and appropriate response on the part of the executives. They are now required to move from routinized problem-solving to more vigilant environmental scanning and problem solving. Using the 1978 airline deregulation as the context, this study examines the effects of a dramatic increase in managerial discretion on the top executive team by focusing on the following three elements: composition, compensation, and attention. We develop a set of hypotheses linking the heightened level of discretion with each of these three elements directly. We also argue that the adjustments in composition and compensation will in turn reinforce changes in executive attention.; In the second part of this study, the effects of these top management team-level changes on the organizational outcomes are examined. Specifically, the renewal of the top team is expected to induce and facilitate strategic change. Furthermore, such changes will result in crucial implications for firm performance. Drawing from the contingency theory, we also build hypotheses testing that an appropriate alignment between TMT characteristics in all three facets with the strategic changes is necessary to achieve high performance. All in all, the findings render support for the basic premises of this study: The top executive team is an integral part of the adaptive mechanism that drives and enhances organizational adaptation in the context of a major environmental shift.