Journal Article
Convex payoffs: implications for risk-taking and financial reform
Abstract: Financial executive pay is a convex function of profits if recipients get a greater increment in pay when returns are high as opposed to moderate, compared with when returns are moderate as opposed to low. Convex compensation packages give financial executives incentive to adopt risky investment projects, implement highly levered capital structures, and create new risk. Financial regulators may be able to enforce changes in compensation that would attenuate these adverse effects.
Keywords: Executives - Salaries;
Access Documents
File(s): File format is application/pdf https://www.frbsf.org/wp-content/uploads/el2010-30.pdf
File(s): File format is text/html https://www.frbsf.org/research-and-insights/publications/economic-letter/2010/10/convex-payoffs-risk-taking-financial-reform/
Authors
Bibliographic Information
Provider: Federal Reserve Bank of San Francisco
Part of Series: FRBSF Economic Letter
Publication Date: 2010
Order Number: 30