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This dissertation examines the relationship between CEO compensation components and the
innovation capabilities of publicly traded companies in the United States of America. Based
on an extensive literature review, I hypothesize that payment components with convex
payoffs as well as those with long-term payoffs have a positive influence on innovation.
Further, I expect cash based compensations to have no or a negative influence on innovation.
Lastly, I develop a hypothesis regarding instruments that protect executives in case of failure
and their positive influence on innovation. Using a sample of S&P 1500 constituents over 14
years, I find that an increase of the proportion of stock options in CEO compensation has a
positive influence on innovation input and output as well as on innovation effectiveness. I
obtain similar results for the proportion of long term incentives in the total compensation. For
salary and bonus, I find that a higher proportion has a negative influence on innovation input
and output. After a sample split, I show that all findings related to compensation components
only hold for firms in less innovative industries. In a subsequent small sample analysis, I
characterize elements of golden parachute agreements and classify them in accordance to the
protection they offer to CEOs. Subsequently, I find evidence that more innovative firms use
more and further developed agreements. I conclude that such protections for failure can
influence the motivation of executives to innovate.