Executive Compensation And Idiosyncratic Risk
Panta, Hum Nath
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Executive compensation is a very heavily researched area in finance, accounting and management over the last three decades. However, there are several inconclusive issues. One of them is the relationship between idiosyncratic risk and executive compensation. Prior research findings on this issue are inconclusive. In this context, this dissertation analyzes the effects of idiosyncratic risk on executive compensation. This research seeks to discover and document the role of idiosyncratic risk on all top executive compensation, CEO compensation and non-CEO executive compensation. This study will begin with an extensive review of prior studies on executive pay to identify the determinants of executive pay. Based on the prior research, this study uses the most inclusive model to find the role of idiosyncratic risk on executive pay. This research finds that there is a positive effect of idiosyncratic risk on executives' salary, bonus, equity and total compensation. When we analyze the impact of idiosyncratic risk on CEO's and non-CEO executives' compensation separately, our main findings remain unchanged. We find that idiosyncratic volatility has a positive effect on executives', CEO and non-CEO executives' salary, bonus, equity and total compensation.