Explain why using the trade-off between risk and incentive

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Regulated firms, such as electric utilities, typically have limited discretion over the prices they charge. Regulators set prices to guarantee a fixed return to the firm's owners after gathering information about operating costs. Studies of executive pay practices have consistently shown that the compensation of utility CEOs is significantly less sensitive to the firm's performance than that of nonutility CEOs. Explain why, using the trade-off between risk and incentives.

Reference no: EM131184856

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