- Author : Tanseli Savaser
- Publisher :
- Release : 2016
- ISBN :
- Pages : 50 pages
Differential Risk Taking Implications of Performance Incentives from Stock and Stock Option Holdings
Download or read book Differential Risk Taking Implications of Performance Incentives from Stock and Stock Option Holdings written by Tanseli Savaser and published by . This book was released on 2016 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we study the risk taking implications of managerial pay-for-performance incentives (delta). The extant empirical literature is built on the presumption that each unit of delta has an equal risk inducing effect regardless of its source. Instead, following the predictions of the principal-agent models of executive compensation, we differentiate between performance incentives from stock and option holdings. We show that while option delta is positively associated with firm riskiness, stock delta does not have a significant effect on risk taking. Consequently, the relationship between the total value of pay-for-performance incentives and firm risk strengthens as the relative contribution from option holdings increases. Our findings contribute to the debate on the executive pay reforms, stressing the need to consider the composition of stock-based pay when designing compensation packages to provide appropriate performance and risk incentives to the executives.