Macroeconomic Fluctuations as Sources of Luck in CEO Compensation

Reprint No. 2016:32

Author(s): Hsin-Hui Chiu, Lars Oxelheim, Clas Wihlborg and Jianhua ZhangYear: 2016 Title: Journal of Business Ethics Volume (No.): 136 (2) Pages: 371–384
Online article (restrictions may apply)

Macroeconomic fluctuations in interest rates, exchange rates, and inflation can be considered sources of good or bad “luck” for corporate performance if management is unable to adjust operations to these fluctuations. Based on a sample of 2,091 US firms, we decompose the impacts of macroeconomic fluctuations on three measures of CEO compensation. Our study provides empirical support for the importance of considering macroeconomic fluctuations in designing CEO incentive schemes. It adds to the managerial power literature on moral hazard and CEO compensation by pinpointing the obvious risk that the CEO in an asymmetric and non-linear reward system will be inclined to prioritize his/her own cash flow at the expense of fulfilling an assumed agency role. The policy conclusion for remuneration committees and board of directors is to filter out macroeconomic influences on performance to be rewarded whenever an asymmetric compensation scheme has been opted for.

Chiu, Hsin-Hui, Lars Oxelheim, Clas Wihlborg and Jianhua Zhang (2016), "Macroeconomic Fluctuations as Sources of Luck in CEO Compensation". Journal of Business Ethics 136(2), 371–384.

Lars Oxelheim


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In this book Andreas Bergh, Therese Nilsson, IFN and Lund University, and Daniel Waldenström, IFN and Paris School of Economics, France, review the latest research on the relationship between inequality and health. What does inequality mean for our health? Does increasing income inequality affect outcomes such as obesity, life expectancy and subjective well-being?


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