This study investigates the critical role of R&D investment and operating efficiency in shaping executive compensation structures, with a focus on the influence of systematic and unsystematic risks. Using a sample of Taiwanese listed companies, the analysis reveals positive relationships between R&D investment, operating efficiency, and executive compensation structure. Systematic risk amplifies these relationships, while unsystematic risk diminishes them. The results also support the argument that executives, as risk-averse yet diversified agents, are primarily compensated for bearing systematic rather than diversifiable risk. This study extends the compensation literature by distinguishing the differential effects of two types of market risk, offering practical insights for firms seeking to align executive pay with long-term strategic goals in varying risk environments.
Hui-Tzu Lee (Thu,) studied this question.
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