How executive incentive design affects risk-taking: a literature review

This paper presents a review of research regarding the effects of monetary executive incentives on risk-taking. More precisely, we investigate executives’ risk-taking (i) in response to the curvature (steepness, convexity, concavity) of the compensation function and (ii) with regard to reference poi...

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Bibliographic Details
Published in:Review of managerial science 2023-10, Vol.17 (7), p.2349-2374
Main Authors: Kreilkamp, Niklas, Matanovic, Sascha, Schmidt, Maximilian, Wöhrmann, Arnt
Format: Article
Language:English
Subjects:
Accounting/Auditing
Banking
Behavior
Business and Management
Business Strategy/Leadership
Compensation
Economic crisis
Executives
Expected utility
Expected values
Incentives
Literature reviews
Marketing
Original Paper
Performance evaluation
Stock options
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Summary:This paper presents a review of research regarding the effects of monetary executive incentives on risk-taking. More precisely, we investigate executives’ risk-taking (i) in response to the curvature (steepness, convexity, concavity) of the compensation function and (ii) with regard to reference points. Thereby, we refine and update common textbook knowledge. In this vein, we identify essential moderators at the personal, firm, or environmental level that can be used to assess the effectiveness of the incentive scheme in a specific context. Implications for incentive system design in practice and paths for future research are discussed.
ISSN:1863-6683
1863-6691
DOI:10.1007/s11846-022-00582-0