OVERVIEW
We estimate the pay premium associated with CEO incentive compensation. Using explicit detailed U.S. CEO compensation contract data and simulation analysis, we find that CEOs with riskier pay packages receive a premium for pay at risk that represents 13.5 percent of total pay. The premium is positively correlated with proxies for CEO risk aversion, but implied risk aversion values suggest that the premium is economically smaller than suggested by prior studies. We perform our tests using a variety of proxies to measure the variance of pay and find consistent evidence of economically small pay risk premiums. These results are consistent with recent findings suggesting that risk may have a more limited influence over the level of pay than previously thought.
A+ JOURNALS FACULTY HAVE PUBLISHED IN
Auditing: A Journal of Practice & Theory European Journal of Marketing Information Systems Journal International Journal of Hospitality Management Journal of Consumer Psychology Journal of Management Accounting Research Journal of Management
Journal of Management Studies Journal of Marketing Research
Journal of Money, Credit and Banking Journal of Organizational Behavior Journal of Retailing Journal of Service Research
The Accounting Review The Florida Tax Review
The Journal of Human Resources Strategic Management Journal
EDITORIAL BOARD MEMBERS OF
Academy of Management Review Auditing: A Journal of Practice and Theory Contemporary Accounting Research Industrial Marketing Management International Journal of Hospitality Management Journal of Banking and Finance Journal of International Business Studies Journal of Organizational Behavior Journal of the Academy of Marketing Science
The Accounting Review, 2024
TAKEAWAYS
CEOs with riskier compensation packages earn a 13.5% premium for taking on pay at risk. This premium is economically smaller than suggested by prior studies. The small premium suggests risk-sharing does not fully explain U.S. executive incentives.
Ann Albuquerque Rui Albuquerque Mary Ellen Carter Qi (Flora) Dong
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