CEO Wealth and the Provision of Incentives : an empirical investigation of the determinants of CEO incentives at companies listed on the Oslo stock exchange 1998-2008

Abstract

Agency theory predicts that optimal levels of executive incentives are influenced by a trade-off between achieving CEO-shareholder goal alignment, and paying the CEO a risk premium. Executives with higher wealth levels and therefore lower absolute risk aversion should demand a lower risk premium for compensation at risk, and thus equity incentives are predicted to be stronger. Regressions are run of CEO equity incentives on wealth, using data on individual wealth from Norwegian tax authorities. For one of two incentive measures used, empirical results indicate that – in line with predictions of theory – higher-wealth CEOs have stronger equity incentives.