The link between executive remuneration incentives and regulatory noncompliance

This study examines how executive remuneration structures relate to corporate misconduct in the form of regulatory noncompliance. Using a panel of US firms over the past 25 years, we link subsidiary-level violations of all major areas of corporate regulation (e.g., antitrust or employment law) to parent-company executive remuneration. We find that equity-based compensation is positively associated with regulatory noncompliance, whereas higher fixed remuneration relative to firm size significantly reduces it. These findings provide novel evidence on the unintended consequences of equity-based incentives and are relevant for boards, remuneration committees, and regulators concerned with executive pay design and compliance risks.