Board Structure and Executive Compensation for R&D Spending in Innovative Companies Amid COVID-19

Innovation has played a vital role in continuing business operations worldwide amid the challenges of the COVID-19 pandemic. Innovation is critical for the success and survival of global organizations. Due to the risky long-term nature of innovation, executives with decision-making power may act cynically. Such pessimistic actions become normal when executive compensation is based on the firm’s short-term outcomes. Therefore, the current research examines the effect of executive compensation on research and development (R&D) investment using data from the world’s top 48 innovative companies in Australia. The proposed model was tested using Smart-PLS (v.3.2.8). The findings indicate that board composition significantly and positively affects R&D investment. Likewise, the long-term composition of executives has a positive effect, whereas short-term executive compensation has a negative effect on R&D. Hence, this research suggests that to increase innovation, firms should control the myopic actions of top management by orientating their compensation toward long-term innovation.