Management Papers

Document Type

Journal Article

Date of this Version

2-2011

Publication Source

The Review of Financial Studies

Volume

24

Issue

2

Start Page

402

Last Page

438

DOI

10.1093/rfs/hhq112

Abstract

We compute and compare risk-adjusted CEO pay in the United States and United Kingdom, where the risk adjustment is based on estimated risk premiums stemming from the equity incentives borne by CEOs. Controlling for firm and industry characteristics, we find that U.S. CEOs have higher pay, but also bear much higher stock and option incentives than U.K. CEOs. Using reasonable estimates of risk premiums, we find that risk-adjusted U.S. CEO pay does not appear to be large compared to that of U.K. CEOs. We also examine differences in pay and equity incentives between a sample of non-U.K. European CEOs and a matched sample of U.S. CEOs, and find that risk-adjusting pay may explain about half of the apparent higher pay for U.S. CEOs.

Copyright/Permission Statement

This is a pre-copyedited, author-produced PDF of an article accepted for publication in The Review of Financial Studies following peer review. The version of record is available online at: http://rfs.oxfordjournals.org/content/24/2/402.abstract.

Keywords

CEO compensation, incentives, risk aversion, corporate governance, international comparisons

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Date Posted: 27 November 2017

This document has been peer reviewed.