0000000000230118
AUTHOR
Hsin-hui Chiu
Exchange Rate and Macroeconomic Fluctuations as Sources of Luck in CEO Compensation
Exchange rate and other macroeconomic fluctuations can be considered sources of good or bad “luck” for corporate performance. Incentive effects of performance-based compensation for management may be weakened or biased by macroeconomic influences on remuneration depending on the ability of management to adjust operations. We decompose the changes in CEO-compensation to distinguish between (anticipated-and unanticipated) macroeconomic and “intrinsic” sources. Total US CEO-compensation is measured both including options awarded and options exercised. Both depend strongly on variations in macro-factors but the time patterns differ. Allowing for asymmetric effects on compensation we find that c…
Macroeconomic Fluctuations as a Source of Luck in CEO Compensation
Macroeconomic fluctuations such as interest rate and exchange rate can be considered sources of good or bad “luck” for corporate performance. Incentive effects of performance-based compensation for management may be weakened or biased by macroeconomic influences depending on the ability of management to adjust for operations. We decompose the impacts on CEO compensation to distinguish between macroeconomic (anticipated and unanticipated) and “intrinsic” sources. Total CEO compensation is measured by including options awarded or options exercised. Both measures depend strongly on variations in macro factors but the time patterns differ. The macroeconomic factors increased total awarded compe…
Asymmetry of CEO Compensation and the Role of Relative and Macroeconomic Shocks in Risk Taking Incentives
If managers are risk-averse and compensation schemes are not directly linked to shareholder wealth, incentives to allocate effort to manage effects of relative and macroeconomic shocks may be distorted. In this paper we develop a simple model to identify factors that determine the optimal allocation of effort to manage relative and macroeconomic shocks. We then show how serial correlation in shocks, the relative variance of shocks and the ability of managers to influence the effects of shocks on shareholder wealth determine the optimal allocation of managerial effort. Thereafter, we emphasize how CEO compensation depends on performance variables distinguishing between relative and macroecon…