Are CEOS Paid Extra for Riskier Pay Packages?
62 Pages Posted: 13 Aug 2018 Last revised: 2 May 2022
Date Written: April 25, 2022
This paper estimates the pay premium from CEO incentive compensation. Using detailed U.S. CEO contract compensation data and simulation analysis, we find that CEOs with riskier pay packages are paid a premium from pay at risk that represents 15% of total pay. The premium correlates positively with proxies for CEO risk aversion. We decompose the premium into its bonus, stock, and option grant components. We find a significant premium in stock grants, but not in bonus or option grants. Our estimates of the pay premium can serve as a benchmark to compensation consultants.
Keywords: CEO pay, risk premium, incentive pay, contract theory, Incentive Lab, ARCH
JEL Classification: D81, G30, J33
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