Corporate Governance (On Page 182, Book 3 of Schweser) generate, however, related

krause2

Hi, all.
about Explicit Managerial Incentives;
Schweser says;
Ideally, CEO compensation should be very closely related to changes in shareholder wealth.
However, a paper by Jensen and Murply(1990) found this is not the case.
Others have disputed their findings, however, by pointing out that
the result may just reflect MANAGERIAL RISK AVERSION and the fact that it takes a team of employees
to generate shareholder wealth, not just a CEO.
what does it mean “result may just reflect MANAGERIAL RISK AVERSION”??
what’s the relation between CEO compensation and “MANAGERIAL RISK AVERSION”?
anyone clarify this sentence?
thanks in advance.

Nishant1

CEO’s may not take as much risk if their wealth or compensation is tied to the success or failure of that venture. If it is riskier then they may avoid risk.

Kapie

We should note that… it is a problem if the manager is not taking appropriate risks… obviously it’s a good thing if CEO’s aren’t overlevering and swinging for the fences… detrimental if they’re not trying to reasonably increase shareholder and instead are trying to mitigate short fall risk at the expense of expected return