Labor Unemployment Risk and CEO Incentive Compensation

• 成果类型: Article
• 署名作者: Ellul, Andrew; Wang, Cong; Zhang, Kuo
• 署名单位: Indiana University System; Indiana University Bloomington; IU Kelley School of Business; Centre for Economic Policy Research - UK; European Corporate Governance Institute; The Chinese University of Hong Kong, Shenzhen; Shanghai Jiao Tong University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4714
• 发表日期: 2024
• 关键词: unemployment risk; human capital; Executive compensation; risk taking; leverage

摘要

Unemployment risk influences workers' incentives to invest in firm-specific human capital. This paper investigates the impact of unemployment risk on chief executive officers (CEOs)' risk-taking incentive compensation. Exploiting state-level changes in unemployment benefits, we find that after unemployment insurance benefits become more generous, boards increase the convex payoff structure of CEO pay to encourage risk taking. The increase in CEOs' convexity payoff is stronger in firms with more independent and diverse boards, higher ownership of long-term shareholders, and in industries requiring highly skilled labor. Our findings suggest that boards internalize workers' interests in firms' risk taking decisions and executive compensation is one mechanism used.