Document Type

Article

Publication Date

12-28-2014

Abstract

Macroeconomic fluctuations in interest rates, exchange rates, and inflation can be considered sources of good or bad “luck” for corporate performance if management is unable to adjust operations to these fluctuations. Based on a sample of 2,091 US firms, we decompose the impacts of macroeconomic fluctuations on three measures of CEO compensation. Our study provides empirical support for the importance of considering macroeconomic fluctuations in designing CEO incentive schemes. It adds to the managerial power literature on moral hazard and CEO compensation by pinpointing the obvious risk that the CEO in an asymmetric and non-linear reward system will be inclined to prioritize his/her own cash flow at the expense of fulfilling an assumed agency role. The policy conclusion for remuneration committees and board of directors is to filter out macroeconomic influences on performance to be rewarded whenever an asymmetric compensation scheme has been opted for.

Comments

This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Journal of Business Ethics, volume 136, issue 2, in 2016 following peer review. The final publication is available at Springer via http://dx.doi.org/10.1007/s10551-014-2520-1 and may differ from the version presented here.

Peer Reviewed

1

Copyright

Springer

 
 

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