Article | Journal of Finance | February 2006

Wealth and Executive Compensation

Abstract

Using new data on the wealth of Swedish CEOs, I show that higher wealth CEOs receive stronger incentives. Since high wealth (excluding own-firm holdings) implies low absolute risk aversion, this is consistent with a risk aversion explanation. To examine whether wealth is likely to proxy for power, I use lagged wealth (typically measured before the CEO was hired), and the results remain for one of two incentive measures. Also, the wealth-incentive result is not stronger for CEOs likely to face limited owner oversight. Finally, wealth is unrelated to pay levels, and is hence unlikely to proxy for skill.

Keywords: Wealth; Executive Compensation; Motivation and Incentives; Power and Influence; Risk Management; Competency and Skills; Wages; Sweden;

Citation:

Becker, Bo. "Wealth and Executive Compensation." Journal of Finance 61, no. 1 (February 2006): 379–397.