CEO Optimism and Incentive Compensation

93 Pages Posted: 21 Oct 2009 Last revised: 6 Jun 2014

See all articles by Clemens A. Otto

Clemens A. Otto

Singapore Management University - Lee Kong Chian School of Business

Date Written: June 6, 2014

Abstract

I study the effect of chief executive officer (CEO) optimism on CEO compensation. Using data on compensation in US firms, I provide evidence that CEOs whose option exercise behavior and earnings forecasts are indicative of optimistic beliefs receive smaller stock option grants, fewer bonus payments, and less total compensation than their peers. These findings add to our understanding of the interplay between managerial biases and remuneration and show how sophisticated principals can take advantage of optimistic agents by appropriately adjusting their compensation contracts.

Keywords: CEO Optimism, incentive compensation, compensation contract

JEL Classification: G34, J33, M52

Suggested Citation

Otto, Clemens A., CEO Optimism and Incentive Compensation (June 6, 2014). Available at SSRN: https://ssrn.com/abstract=1484683 or http://dx.doi.org/10.2139/ssrn.1484683

Clemens A. Otto (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

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