CEOs' International Work Experience and Compensation.

VerfasserSchmid, Stefan

1 Introduction

Multinational corporations (MNCs) need top managers who are able to navigate in diverse environments. Hence, it has repeatedly been emphasized that top managers with international experience are beneficial for MNCs (Daily et al. 2000; Magnusson and Boggs 2006; Ng et al. 2009). David Jones, Senior Managing Director at specialized recruitment firm Robert Half International, recently stated, "Aside from being personally rewarding, leaders who display diversified career experience--whether by working in global markets or by undertaking international assignments--generally have a better understanding of how organizations operate internationally [...]" (The CEO Magazine 2019). In this respect, we can expect that a top manager's international experience affects not only his or her individual development, but also his or her compensation. Firms continue to stress that only attractive compensation schemes allow them to hire and/or retain individuals who are suitable for top management positions in an international context (Consultancy.eu 2018; The Guardian 2019).

In the present paper, we combine human capital theory with resource perspectives of the firm, i.e., resource dependence theory and the resource-based view. We propose that international work experience (IWE) affects a CEO*s human capital, and hence his or her skills, knowledge and competencies. As these skills, knowledge and competencies constitute valuable resources for a firm, a CEO with such resources can influence compensation (setting) in his or her favor. We argue that not only the duration, but also the timing and breadth of international work experience matter for compensation. In terms of duration, we consider how long international work experiences have lasted. Timing relates to the question of how far international experiences date back or how recent they are. Breadth reflects how many different stays abroad were completed.

As we distinguish between different dimensions of international experience, we respond to recent calls in literature to refine and improve our understanding of international work experience (Le and Kroll 2017; Reiche et al. 2019; Rickley 2019; Takeuchi and Chen 2013). In doing so, we move beyond existing literature that focused exclusively on the mere existence or the duration of international work experience (Conyon et al. 2019; Schmid et al. 2018). In our paper, we also acknowledge that the relationship between international work experience and compensation is contingent on other individual-level characteristics of the CEO. In this regard, we focus on CEOs' maturity. By drawing on literature about maturity, we theorize that maturity moderates the relationships between different dimensions of international work experience and compensation.

We empirically test our hypotheses with a sample of the CEOs from the 500 largest firms in Europe (see also Schmid et al. 2018). Based on detailed, hand-collected data on CEOs' careers, we analyze each individual's international work experiences completed prior to being appointed to the CEO position. Our regression analyses provide empirical evidence that the longer and the more often a CEO has stayed abroad in his or her career, the higher the compensation level that can be realized. While our hypothesized relationship emphasizes the value of late international work experience, our empirical results, in contrast, highlight that earlier international work experience is associated with higher compensation. Our moderated regression analyses show a positive, moderating influence of a CEO's maturity. We also carry out additional analyses, in which we combine duration, timing and breadth of stays abroad into composite indices, in order to investigate the joint effects of the dimensions of international work experience. Moreover, in refined analyses, we include the cultural distance (CD) to the countries where a CEO gained his or her international experience. We may thus infer that working in countries with higher cultural distance pays off more than work experience in countries with lower cultural distance.

Through our paper, we add to research on CEOs, their international work experiences, and their compensation in an MNC context (Career Trend 2017; Van Essen et al. 2015). Among all top executive positions, the CEO position is the most important and publicly exposed one, but we still lack insights into the impact of CEO characteristics, such as international work experience, on an outcome like compensation (see, for instance, Bebchuk et al. 2011; Bruton et al. 1997). With some notable exceptions (Carpenter et al. 2001; Rand0y and Nielsen 2002; Schmid and Altfeld 2018), previous literature on international work experience predominantly focuses on firm-level consequences of CEOs' stays abroad (see, for instance, Daily et al. 2000; Le and Kroll 2017; Slater and Dixon-Fowler 2009). In general, while many studies have already investigated factors that influence compensation at the country level, the industry level and the firm level (Kostiuk, 1990; Porac et al. 1999; Tosi and Greckhamer 2004), literature on individual-level determinants is still relatively scarce.

Thus, we contribute herein to International Business (IB), upper echelons, and corporate governance literature. First, by building on human capital theory, resource dependence theory and the resource-based view, we theorize not only about the value of international work experience, but also the actual way it enables CEOs to influence their compensation. This is an advancement compared to existing studies (Carpenter et al. 2001; Conyon et al. 2019; Schmid and Altfeld 2018), as we attempt to unpack the mechanism that allows CEOs to receive a higher payoff in relation to stays abroad. By differentiating between duration, timing and breadth, we argue that several dimensions of international work experience determine the value of its embedded human capital. While prior literature has largely neglected individual-level influences on CEO compensation, we also highlight the relevance of contingency factors, by describing the positive effects of individual maturity as a moderator (which to date has often had a negative connotation, e.g., Simpson et al. 2002). Second, through our empirical results, we emphasize the importance of early international experience and associated general-purpose human capital, whereas prior literature has often stressed the merits of experience (abroad) in general or late experiences (abroad) and the so-called 'taskspecific' human capital (Carpenter et al. 2001; Schmid and Altfeld 2018; Schulz et al. 2013). Herein, we add novel empirical insights into the value of the experience gained in different phases of an individual's life. Third, practitioners who wish to grasp the monetary value of stays abroad can benefit from our study, since our paper increases firms' and/or compensation consultants' understanding of what makes internationally seasoned CEOs 'more expensive'.

2 Theoretical Background and Hypotheses

2.1 International Work Experience and Compensation

2.1.1 International Work Experience: The Human Capital Theory Perspective

Human capital theory helps us to argue why international work experience matters. Its basic assumption is that an individual's characteristics transfer into his or her ability to perform certain tasks or jobs (Blaug 1976; Dobbs et al. 2008; Nafukho et al. 2004). In line with existing studies, we assume that international work experience influences individuals in general and contributes to human capital in particular (Inkson et al. 1997; Magnusson and Boggs 2006; Takeuchi et al. 2005). Many studies have shown that international work experience shapes the values, attitudes, beliefs and behaviors of top managers such as CEOs (Carpenter et al. 2001; Daily et al. 2000; Slater and Dixon-Fowler 2009). Furthermore, scholars have suggested that international work experience provides CEOs in MNCs with important capabilities required to perform their tasks (David and Lopez 2001; Mahoney and Kor 2015) and to make wide-reaching decisions, also in an international context (Jiang et al. 2018; Lepak and Snell 1999).

We argue that work experience abroad is linked to increases in a CEO's human capital. By staying abroad, (future) top managers accumulate valuable skills, knowledge and competencies (Carpenter et al. 2001; Herrmann and Datta 2005; Jones 2013; Roth, 1995), which in turn helps them lead firms that operate abroad (Lu and Beamish 2001; Sambharya 1996) and enhances innovativeness, creativity or entrepreneurial orientation (Godart et al. 2015; Maddux and Galinsky 2009; Maddux et al. 2020; Schlepphorst et al. 2020). In other words, international work experience is positively related to the development of the kind of human capital that is necessary to cope with the challenges in an increasingly globalized world (Gupta and Govindarajan 2002; Knight and Cavusgil 2004; Peng et al. 2015). Human capital obtained through international work experience also improves top managers' ability to adapt to and proactively operate in diverse environments (Haas 2006; Ng et al. 2011; Tung, 1998). Moreover, international work experience is a crucial characteristic of CEOs in MNCs, as it can favorably affect firmlevel outcomes such as strategies or performance (Athanassiou and Nigh 2002; Demir and Soderman 2007; Lee and Roberts 2015; Nielsen 2010; Sambharya 1996).

However, we do not assert that each international work experience is of equal value. Rather, we suggest that its value is also determined by the type of human capital acquired with the help of the stay abroad. Several scholars argue that different types of human capital exist (Datta and Iskandar-Datta 2014; Gibbons and Waldman 2004; Wright and McMahan 2011). For instance, based on Becker's (1964) work, Gibbons and Waldman (2004) distinguish between task-specific human capital and general-purpose human capital. Human capital that is...

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