Tailoring Compensation Contracts to Moderate the Effect of CEOs’ Behavioral Attributes on Corporate Outcomes

Posted: 10 Apr 2023 Last revised: 9 Dec 2024

See all articles by Mark Humphery-Jenner

Mark Humphery-Jenner

University of New South Wales (UNSW); UNSW Business School; Financial Research Network (FIRN)

Emdad Islam

Monash University

Lubna Rahman

Monash University

Jo-Ann Suchard

Financial Research Network (FIRN); UNSW Business School

Date Written: June 10, 2022

Abstract

CEO behavioral attributes significantly influence corporate outcomes. We hypothesize and show that firms can moderate this impact via compensation contracts. We examine how firms tailor compensation contracts based on CEOs’ early life disaster exposure, which can shape their risk aversion. On average, firms mitigate risk aversion by offering a 5.24 percent higher compensation delta and a 6.43 percent higher compensation vega, with a more significant proportion of compensation comprising stock grants and options. The ability to adjust compensation depends on governance and corporate attributes. Compensation adjustments significantly moderate the impact of disaster exposure (risk aversion) on corporate outcomes, such as innovation and risk-taking. We bolster identification by exploring exogenous CEO turnovers and a quasi-experiment utilizing the option expensing rule, FAS123R. We highlight the importance of including moderating effects, such as compensation, when analyzing the impact of CEO attributes on corporate outcomes.

Keywords: Compensation, Corporate Governance

JEL Classification: G34

Suggested Citation

Humphery-Jenner, Mark and Humphery-Jenner, Mark and Islam, Emdad and Rahman, Lubna and Suchard, Jo-Ann and Suchard, Jo-Ann, Tailoring Compensation Contracts to Moderate the Effect of CEOs’ Behavioral Attributes on Corporate Outcomes (June 10, 2022). UNSW Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4400226

Mark Humphery-Jenner (Contact Author)

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Emdad Islam

Monash University ( email )

Wellington Road
Clayton, Victoria 3168
Australia

Lubna Rahman

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Jo-Ann Suchard

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

UNSW Business School ( email )

high street
High St
sydney, NSW 2052
Australia

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