Firms compensate managers to maximize shareholder value, yet these same incentives affect bondholder risk. We investigate the relation between executive equity pay and the cost of debt. Our findings indicate a “u-shaped” relation between bond yields and equity pay. These results are consistent with the notion that bondholders prefer a moderate amount of executive equity pay and above or below that level, bondholders increase yields to protect their interests. These findings suggest that moderate levels of equity pay mitigate the agency costs between firm shareholders and bondholders. • We examine the relation between executive equity incentives and the cost of debt. • Executive equity incentives display a nonlinear u-shaped relation with the cost of debt. • At high levels of equity pay, additional equity pay increases yield spreads which is consistent with managerial risk-shifting. • Contrary to prior literature, yield spreads display greater sensitivity to CEO equity incentives than CFO equity incentives.