To properly align incentives using equity-linked compensation, the firm's managers must be exposed to firm-specific risks, but this forced concentrated exposure prevents the manager from optimal portfolio diversification. Because undiversified managers are exposed to the firm's total risk, but...

This paper provides an overview of corporate risk management for senior managers. The author discusses the integrated risk management framework, emphasizing that a company can implement its risk management objectives in three fundamental ways: modifying its operations, using targeted financial...