Incentive CompensationWhen Executives Can Hedge theMarket: Evidence of Relative Performance Evaluation in the Cross Section


Little evidence exists that ¢rms index executive compensation to remove the in£uence of marketwide factors.We argue that executives can, in principle, replicate such indexation in their private portfolios. In support, we ¢nd that market risk has little e¡ect on theuse of stock-based pay for the average executive. But executives’ability to ‘‘undo’’excessive… (More)

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