ABSTRACT

The concept of risk is perhaps one of the most central constructs in executive compensation research. While risk bearing and risk taking by managers have been increasingly discussed by compensation committees, HR experts, and scholars in the field, uniform metrics of risks and how to apply such metrics in determining executive compensation remains unclear. This is a contentious issue that has become paramount during the recent economic debacle and that has become an integral part of the conversation in the government’s attempt to deal with what many people see as widespread “imprudent” or “reckless” risks taking by senior executives (Parloff, 2009; Loomis, 2009a). This chapter deals with major issues regarding the link between different forms of risk and the structure of pay.