TY - JOUR AU - Harris, Michael AU - Aaron, Joshua AU - McDowell, William AU - Cline, Brandon PY - 2014/10/15 Y2 - 2024/03/29 TI - Optimal CEO Incentive Contracts: A Prospect Theory Explanation JF - Journal of Business Strategies JA - J Bus Strategies VL - 31 IS - 2 SE - Research Articles DO - 10.54155/jbs.31.2.336-356 UR - https://jbs-ojs-shsu.tdl.org/jbs/article/view/74 SP - 336-356 AB - <p>This study examines the relationship between CEO incentive-based compensation<br>and firm performance, based on the role of prospect theory in executive<br>compensation. Our results indicate that moderate levels of performance-based CEO<br>compensation are generally optimal. When an executive’s total compensation package<br>is based more on firm performance there is often a level of higher returns, but to<br>a point of diminishing return. Our findings suggest that boards must clearly communicate<br>with CEOs to determine the most appropriate levels of incentive-based compensation.<br>Additional managerial and theoretical implications are offered, as well as avenues for future research.</p> ER -