This Closer Look illustrates the relation between executive compensation and organizational risk through the context of the financial crisis of 2008. We demonstrate that the incentives that bankers had to increase firm risk not only increased but increased substantially in the years preceding the financial crisis.
- How well do boards understand the relation between compensation and risk?
- How much attention do directors pay to the risk-taking incentives provided by CEO wealth?
- Do boards consider the relation between incentives and the risk tolerance of the firm?
- How much risk should an executive be encouraged to take?