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CEO optimism and incentive compensation

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  • Otto, Clemens A.

Abstract

I study the effect of chief executive officer (CEO) optimism on CEO compensation. Using data on compensation in US firms, I provide evidence that CEOs whose option exercise behavior and earnings forecasts are indicative of optimistic beliefs receive smaller stock option grants, fewer bonus payments, and less total compensation than their peers. These findings add to our understanding of the interplay between managerial biases and remuneration and show how sophisticated principals can take advantage of optimistic agents by appropriately adjusting their compensation contracts.

Suggested Citation

  • Otto, Clemens A., 2014. "CEO optimism and incentive compensation," Journal of Financial Economics, Elsevier, vol. 114(2), pages 366-404.
    • Handle: RePEc:eee:jfinec:v:114:y:2014:i:2:p:366-404
    DOI: 10.1016/j.jfineco.2014.06.006
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    More about this item

    Keywords

    CEO optimism; Incentive compensation; Compensation contract;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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