The Making of a Daredevil CEO: Why Stock Options Lead to More Risk Taking

http://knowledge.wharton.upenn.edu/article/2807.cfm
Author: Knowledge@Wharton
Source: Knowledge@Wharton
Year: 2011

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Abstract:

Stock options are a critical element of CEO compensation -- making up one quarter of total pay for executives these days. But what does that mean for the risk profiles of the companies those CEOs lead? A recent paper by Wharton professor Todd A. Gormley studied this issue by examining what steps CEOs took when hit with a sudden increase in business risk. The finding: Stock options do have an effect on risk taking -- which, Gormley argues, "should be factored into compensation structure by boards of directors."