Exchange Rate and Macroeconomic Fluctuations as Sources of Luck in CEO Compensation

Exchange rate and other macroeconomic fluctuations can be considered sources of good or bad “luck” for corporate performance. Incentive effects of performance-based compensation for management may be weakened or biased by macroeconomic influences on remuneration depending on the ability of management to adjust operations. We decompose the changes in CEO-compensation to distinguish between (anticipated-and unanticipated) macroeconomic and “intrinsic” sources. Total US CEO-compensation is measured both including options awarded and options exercised. Both depend strongly on variations in macro-factors but the time patterns differ. Allowing for asymmetric effects on compensation we find that current compensation (salary bonus) has the most positive asymmetry