Symmetry in Pay for Luck
Review of Financial Studies, Forthcoming
43 Pages Posted: 11 Oct 2012 Last revised: 31 Jan 2020
Date Written: March 7, 2019
In this study, we take a comprehensive look at asymmetry in pay for luck, which is the finding that CEOs are rewarded for good luck, but are not penalized to the same extent for bad luck. Our main takeaway –– based on over 200 different specifications –– is that there is no asymmetry in pay for luck. Our finding is important given that the literature widely accepts the idea of asymmetry in pay for luck and typically points to this as evidence of rent extraction.
Keywords: Asymmetry in Pay for Luck, Pay for Luck, Relative Performance Evaluation, Pay-for-Performance, Compensation, Incentive Alignment
JEL Classification: G32, G34
Suggested Citation: Suggested Citation