Does risk matter for executive compensation?

What is it about?

The purpose of this empirical study is to examine whether CEOs are paid for the systematic and/or unsystematic risks and whether there is any optimum risk premium level in the executive pay. It is found that there is no nexus between CEO pay and unsystematic (diversifiable) risk; however, the association between CEO compensation and systematic (undiversifiable) risk is positively significant in line with agency theory. Moreover, it is revealed that this positive relationship has an optimum point (curvilinear).

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