Risk Premia in Executive Compensation : A Life-Cycle Perspective

  title={Risk Premia in Executive Compensation : A Life-Cycle Perspective},
  author={Florian S. Peters},
How much of the rise in CEO pay can be explained by the increased risk that CEOs are exposed to? This paper employs a life-cycle model of consumption and saving to answer this question, and, more broadly, to study the risk-reward tradeoff in executive compensation. The model incorporates the main types of risk that executives of public corporations face: optionand stock-based pay, pay-performance sensitivity, dismissal risk, and stock return volatility. I use the model to compute risk premia in… CONTINUE READING
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