Disentangling compensation and employment risks using the behavioral agency model

Martin Larraza-Kintana, Robert M. Wiseman, Luis Gomez-Mejia, Theresa M. Welbourne

Research output: Contribution to journalArticle

122 Scopus citations

Abstract

Employing survey and archival data from a sample of IPO firms, and extending the ideas of the Behavioral Agency Model, this study examines the influence of various forms of risk bearing created within the compensation contract on perceived risk taking. The results show that employment risk and variability in compensation each corresponds to greater risk taking, while downside risk and the intrinsic value of stock options correspond to lower risk taking. Among the implications from these results are the importance CEOs attach to relatively stable forms of pay, and to drawing distinctions between the potential for loss of pay and uncertainty about the amount of future pay.

Original languageEnglish (US)
Pages (from-to)1001-1019
Number of pages19
JournalStrategic Management Journal
Volume28
Issue number10
DOIs
StatePublished - Oct 2007

Keywords

  • Behavioral agency model
  • Executive compensation
  • Risk bearing
  • Risk taking

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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