Abstract
This paper is focused on the effect of firms’ financial performance in the compensation of CEOs of Eurostoxx listed hotel firms. We analyze CEO cash-, equity-, and total-compensation using as proxies of financial performance both accounting-based and market-based measures, where both return and risk are considered. Market-based financial risk measure enables us to delve into the relationship between CEO compensation policies and lagged firms' systematic and idiosyncratic risk components computed by using a well-known asset-pricing factorial model. Results show a non-significant linear relationship between CEO compensation policies and stock return in the Eurostoxx hotel firms even when we control for market-based risk. However, results support a negative and significant relationship between lagged financial risk and CEO equity compensation that is more intensively related with the firms' idiosyncratic risk component. Moreover, we show evidence of a non-linear effect of financial return on CEO cash compensation that is idiosyncratic-risk-level dependent.
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