Hedging Executive Compensation Risk Through Investment Banks
نویسندگان
چکیده
Allowing CEOs to hedge the risk in the compensation contracts their rms give them has been controversial because such hedging permits the executives to undo some of the incentive e¤ects of those contracts; it also results in a divergence between the compensation rms pay their senior executives and the compensation those executives e¤ectively receive. We analyze the personal hedging activities of CEOs and identify when rms may gain or lose by allowing or prohibiting such hedging. We also describe variations in CEOsdemands for various compensation hedges, and how rms will restructure their CEOscompensation contracts in anticipation the CEOs will engage in such hedging.
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