We investigate the relationship between management control mechanisms, specifically risk-taking incentives targeted at mitigating moral hazard, and cost behavior during periods of sales declines relative to periods of sales growth. We find that incentive vega of both chief executive officers and top five paid executives is associated with expedited reductions in selling, general, and administrative cost in periods of sales declines. These results are consistent with the Sedatole et al. (J Account Res 50(2):553–592, 2012) finding that incentive vega induces managers to adopt a more elastic cost structure, presumably because managerial operational decisions, particularly outsourcing, increase firms’ total risk. We conduct an additional analysis to rule out an alternative explanation that the expedited cost cuts may be driven by incentives to manage earnings. Finally, our results are robust to alternative measures of risk-taking incentives. Overall, our findings support the view that management control mechanisms through risk-taking incentives are an important determinant of management cost adjustment decisions in periods of demand declines relative to periods of demand growth.