This might be incentive to bend the law when hiring

Personal lives shouldn’t come into hiring decisions, right? Well, when it comes to CEOs that might not be the case, at least theoretically

BY Juliette Willow 30 Apr 2014

What does it matter if a CEO is married or single? Quite a bit, actually, professors at Wharton College and Temple University think. When Wharton professor Nikolai Roussanov looked at the effects of CEO marital status on the decisions they made, they found stark results. Of the 1,500 largest public companies in the US, those led by single CEOs displayed significantly more aggressive behavior in regards to investments, innovation, acquisitions and research & development.

“What was surprising to us was how large the magnitudes of these differences were,” said Roussanov. He found that single CEOs invested almost 75% more as a share of their assets. While part of the difference could be attributed to the fact that the firms that single CEOs ran were usually smaller, younger firms with more room for growth. However, Roussanov said, “even after accounting for the variety of differences…we find that there is a still sizable difference — about 10% greater investment by firms led by single CEOs compared to firms run by CEOs who are married.”

But what does it mean to HR executives when it comes to managing CEOs? It means keeping up-to-date with leaders’ personal situations and recognizing how their risk-taking decisions may be affected. Single men are biologically believed to be more aggressive and less risk-averse, said Roussanov.

“Single individuals [are] clearly competing for potential mates with other single individuals, and one of the important factors in that competition is socio-economic status,” he said. “People who are married [are] more risk averse simply because they have a family to provide for…”

Knowing these factors can help inform the way that compensation is designed. Of course, it’s not legal to allow marital status to inform hiring decisions, but it can help HR executives determine how to shape a compensation package in order to encourage or discourage risk-taking. Incentive compensation is a key factor here, said Roussanov: “For example, in the form of options, clearly it matters how risk tolerant or risk averse the CEO is. And therefore, knowing their personal situation…may impact how sensitive that compensation package that the CEO will receive is to the performance of the firm.”

So for a fast-growing firm taking on a married CEO, that might mean incentivizing him or her to take more risk to combat any conservativism. On the other hand, said Roussanov, “you could have a young single CEO of a firm whose investment opportunities are not that great, or in a firm that needs to grow [in] a more conservative fashion. [In that case,] you may want to scale down the risk appetite of the CEO by appropriately shaping their pay package.”