Abstract
We explore whether new CEOs receive initial pay packages that a) align with their risk preferences or b) are calibrated to offset their natural tendencies. Specifically, we examine the initial pay structures of CEOs in relation to their relative risk tolerance, which we measure using a CEO’s political orientation, and find that more conservative-leaning CEOs receive less performance-based pay than their more liberal-leaning counterparts. Supplemental analyses indicate that both a matching and adjustment process appear to occur, whereby boards offer similar pay packages from CEO-to-CEO, but modify them based on differences in risk tolerances. Moreover, our results suggest that a CEO’s relative risk tolerance also influences the relationship between performance-based pay and strategic change. Liberal CEOs are more sensitive to performance-based pay, while conservative CEOs are relatively intolerant to pay mix. Overall, these findings suggest that contrary to typical recommendations based on agency theory, CEOs often receive pay packages that reinforce their personal risk propensity.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
