Title

Executive Compensation: Does Industry Risk Matter?

Document Type

Article

Publication Date

2008

Abstract

Prior studies of the role of risk in executive compensation focus on market risk and firm risk, neglecting the role of industry risk in explaining executive compensation. We include industry risk and find that the portion of CEO compensation for bearing industry risk is greater than the portion of CEO compensation for bearing market risk. Consistent with the human capital of a CEO being non-diversifiable, CEOs also receive compensation for bearing firm-specific risk, in contrast to investors, who can diversify their risk over many assets. CEOs are compensated for bearing firm-specific risks through all the compensation tools we examine; salary, bonus, option grants and option exercises. CEOs are compensated for bearing market and industry risk primarily through stock option grants.

Recommended Citation

Haggard, Dana L., and K. Stephen Haggard. "Executive compensation: does industry risk matter?." International Journal of Organization Theory & Behavior (PrAcademics Press) 11, no. 4 (2008).

DOI for the article

10.1108/ijotb-11-04-2008-b001

Department

Finance and General Business

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