Journal of Business Ethics

, Volume 136, Issue 2, pp 371–384 | Cite as

Macroeconomic Fluctuations as Sources of Luck in CEO Compensation

  • Hsin-Hui Chiu
  • Lars Oxelheim
  • Clas Wihlborg
  • Jianhua Zhang


Macroeconomic fluctuations in interest rates, exchange rates, and inflation can be considered sources of good or bad “luck” for corporate performance if management is unable to adjust operations to these fluctuations. Based on a sample of 2,091 US firms, we decompose the impacts of macroeconomic fluctuations on three measures of CEO compensation. Our study provides empirical support for the importance of considering macroeconomic fluctuations in designing CEO incentive schemes. It adds to the managerial power literature on moral hazard and CEO compensation by pinpointing the obvious risk that the CEO in an asymmetric and non-linear reward system will be inclined to prioritize his/her own cash flow at the expense of fulfilling an assumed agency role. The policy conclusion for remuneration committees and board of directors is to filter out macroeconomic influences on performance to be rewarded whenever an asymmetric compensation scheme has been opted for.


Macroeconomic fluctuations Luck Corporate performance CEO compensation Moral hazard Managerial power 



Lars Oxelheim acknowledges financial support from NASDAQOMX Nordic Foundation. Jianhua Zhang acknowledges financial support from VINNOVA.


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Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  • Hsin-Hui Chiu
    • 1
  • Lars Oxelheim
    • 2
    • 3
    • 4
  • Clas Wihlborg
    • 5
  • Jianhua Zhang
    • 6
  1. 1.California State University NorthridgeNorthridgeUSA
  2. 2.Lund UniversityLundSweden
  3. 3.Research Institute of Industrial EconomicsStockholmSweden
  4. 4.University of AgderKristiansandNorway
  5. 5.Chapman UniversityOrangeUSA
  6. 6.University of GothenburgGöteborgSweden

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