Businesses that offer their chief executives unusually large bonuses or option plans have higher bond-default rates and more frequent and deeper rating downgrades than their peers, according to a recent report by Moody’s Investors Service.

Of the 43 companies rated B3 or higher that defaulted between 1993 and 2003, Moody’s found, 22 offered their chief executives much-larger-than-expected bonuses or stock option grants at least once. Of the 214 that experienced “large downgrades” — three or more rating notches within 12 months — CEO compensation was higher than expected in 140 cases. Expectations were measured against a company’s size, past operating performance, industry conditions, and long-term rating.

Among the high-paying businesses that eventually defaulted include Enron and Covanta Energy, the report noted. Both were flagged by the Moody’s model as having high unexplained compensation in six of the seven years leading up to their defaults in 2001.

Moody’s report suggested three explanations for this correlation. First, excessive compensation may be indicative of weak management oversight by boards of directors. Second, large pay packages that are highly sensitive to stock price or operating performance may induce greater risk-taking by managers, which may be consistent with the objectives of stockholders but not bondholders. Third, large-incentive pay packages may lead managers to focus on accounting results rather that business results — in the extreme, enabling an environment that can lead to fraud.

Christopher Mann, a Moody’s vice president and author of the report, warned against generalizing from the study, however. “The vast majority of the firms under study never experienced a default or a large downgrade,” he said in a statement. “However, looking carefully at compensation — along with other factors — may help to highlight the effectiveness of a firm’s governance practices.”

Moreover, as a result of changes to the accounting of traditional stock options, more companies are shifting some executive compensation toward restricted stock and performance shares, which may better align management’s interests with that of shareholders.

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