Education and risk-taking incentives: an analysis of CEO compensation contracts

We explore whether CEO educational background attributes and other demographic variables such as gender and age play a role in influencing the incentive features―pay-for-performance (delta) and pay-for-risk (vega)―embedded in their compensation contracts. We interpret these incentive features as robust proxies for idiosyncratic risk tolerance, which is an important element in diverse streams of research including but not limited to the upper echelons theory and the concomitant investigations into the drivers of strategic management choices and organizational outcomes. Using a unique and hand collected dataset, we uncover a number of interesting relationships. For instance, we find that CEOs graduating from elite schools and those with undergraduate majors in subjects like business/economics or the humanities display higher exposure to incentive pay compared to more specialized fields like engineering/science. Our study links observable demographic characteristics to the risk-taking propensities of CEOs which in our view would be of interest to hiring and compensation committees on corporate boards as they select (or renew the contracts of) senior executives.