A fundamental prediction from principal-agent theory is that firms facing greater ex ante exposures to exogenous common shocks should more frequently utilize relative performance evaluation (RPE) in CEO compensation contracts. Recent advances in modeling the economy as a supply network consisting of sectors connected through input-output linkages establish that industries positioned more centrally or upstream face greater ex ante exposures to exogenous common shocks propagating through the network. This paper investigates the impact of firms' network positions on the use of RPE in CEO compensation. We find that firms in industries positioned more centrally or upstream use RPE more frequently and base greater fractions of CEO pay on RPE. We also document that network positions explain variation in firms' RPE-plan implementation via selection of peers. Our findings are consistent with boards using RPE to filter from CEO pay exogenous shocks to firm performance inherent in firms' supply network positions.

We examine whether CEO selection amplifies corporate risk-taking, using prenatal pollution exposure as a plausibly exogenous shock to risk preferences. Exposed managers are disproportionately promoted internally. Before promotion, firms with future exposed CEOs exhibit stretched working capital and expanded capacity, these positions unwind post-promotion. As CEOs, they adopt riskier external policies - higher leverage/volatility and more unrelated M&A - with lower CARs/ROA; the effects reverse after sudden CEO deaths. Identification uses two instruments (state birth-cohort shares, governor party at gestation) with weak-IV-robust inference. Results hold after conditioning on socioeconomic conditions at birth and current firm-area pollution. The patterns fit overoptimism, not overconfidence.