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CEO optimism and incentive compensation

Author

Listed:
  • Clemens A. Otto

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

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

  • Clemens A. Otto, 2014. "CEO optimism and incentive compensation," Post-Print hal-01097589, HAL.
    • Handle: RePEc:hal:journl:hal-01097589
    DOI: 10.1016/j.jfineco.2014.06.006
    as

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