This paper shows that portfolio constraints have important implications for management compensation and performance evaluation. In particular, in the presence of portfolio constraints, allowing for benchmarking can be bene cial. Benchmark design arises as an alternative effort inducement...

Many challenges face the strategic leader who must deal with both the need for continuity and the need for change. Strategic leadership sets the directions, meaning, purposes, and goals of the organization. A long-term perspective is required along with many other competencies. Examples are...

We document evidence that the CEOs who lead the firms that face higher climate change risk (CCR) receive higher equity-based compensation. Our finding is consistent with the compensating-wedge-differential theory and survives numerous robustness and endogeneity tests. The result is more...

Using a news-based index of aggregate policy uncertainty in the US economy, we document a strong negative relation between policy uncertainty and corporate risk-taking. We show that high levels of policy uncertainty are associated with significantly lower future stock return volatility at the...

Prodded by economists in the 1970s, corporate directors began adding stock options and bonuses to the already-generous salaries of CEOs with hopes of boosting their companies' fortunes. Guided by largely unproven assumptions, this trend continues today. So what are companies getting in return...

This paper uses variation in real estate prices to test whether CEOs are paid for luck or to respond to luck. We distinguish between pay for luck and pay for responding to luck by exploiting GAAP accounting rules. In the United States, real estate used in the firm's operations is not...

This paper presents a model of a firm that backdates the granting of executive stock options in order to maximize actual compensation for a given level of reported compensation. The model is used to estimate the magnitude of the difference between the actual and reported values of option grants....

Building on prior research that postulates a positive relationship between firms’ cash flow and innovation output, we examine whether the use of cashflow performance metrics in CEOs’ compensation contracts has a positive effect on firms’ innovation output. We hypothesize and find that...

This paper estimates the risk premium in CEO incentive compensation. Using detailed U.S. CEO contract compensation data and simulation analysis, we find that CEOs with riskier pay packages are paid more. The estimated risk premium from total incentive pay represents 15% of total pay. We further...

Risk-neutral individuals take more risky decisions when they have limited liability.  Risk-neutral managers may not when acting as agents under contract and taking costly actions to acquire informatin before taking decisions.  Limited liability makes it optimal to increase the reward for...