Tailoring Compensation Contracts: Evidence from Early Life Disaster Exposure and CEO Compensation

Posted: 10 Apr 2023

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

Do firms tailor compensation contracts to fit CEOs' individual behavioral traits, and if so, how? We explore this by focusing on CEOs' early life exposure to 'extreme fatality' disasters. Prior literature shows that this can drive agency conflicts of risk aversion. We hypothesize and show that firms alter CEOs' compensation contracts to mitigate this: such disaster-exposed CEOs receive a 5.24% higher compensation delta and a 6.43% higher compensation vega. Further, a higher proportion of their compensation comes from stock and options. The effect is also conditional on governance and corporate attributes. We take steps to mitigate identification and econometric concerns.

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: Evidence from Early Life Disaster Exposure and CEO Compensation (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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