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Comments: CEO hedging opportunities and the weighting of performance measures in compensation

This paper investigates the impact of CEO hedging opportunities and performance on compensation alignment. It explores how perfect hedging of firm-specific risk can affect the alignment of interests between managers and shareholders. Two regression models are proposed for empirical analysis. While the study raises interesting questions, there are limitations in hypothesis development, sample choice, methodology, and result interpretation. Strengthening the theoretical underpinning and developing hypotheses are recommended for future research. The contribution of the paper should be clearly identified to enhance understanding.

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Comments: CEO hedging opportunities and the weighting of performance measures in compensation

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  1. Comments: CEO hedging opportunities and the weighting of performance measures in compensation

  2. The paper explores the effects of CEO hedging opportunities (or hedging costs) and performance on compensation. • When managers can perfectly hedge firm specific risk, the interests of managers and shareholders are not aligned. • Two main regression models are proposed for the empirical study.

  3. Comments: • This paper is seeking to answer a reasonably interesting question in quite an interesting setting. • However, I believe there are a number of serious limitations in this paper, including the hypothesis development, the choice of sample, the empirical methodology, and the interpretation of the results. • My specific concerns are contained in my review. • The authors need to better develop their hypotheses. • The paper only explores the effects of CEO hedging opportunities and performance on compensation. • But some of the arguments are based on theory related to the effect of compensation on performance.

  4. The theoretical underpinning needs to be strengthened. • The hypothesis development • Provides a better link between the empirical results and hypotheses. • The assumption of CEO Hedge • Bettis et al (2001) report only 30% of executives hedge. • Measures of executive hedge vs hedge opportunities. • The contribution of the paper needs to be more clearly identified.

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