In this paper we examine customer firms’ managerial compensation policies when they have important supplier relations. We show that firms with greater reliance on their suppliers tend to offer higher total- and equity-based pay but lower risking-taking incentives to its top executives. Our results are consistent with the argument that suppliers making firm-specific investments are concerned about the customer firm’s prospects. Therefore, firms with important supplier relations use the compensation policies of their top executives (more equity-based and less risk-taking) to signal their commitment to a stable and promising performance in the future. To address endogeneity issues arising out of time-varying omitted variables, we exploit a 2SLS procedure to supplement our baseline OLS findings. Our results are robust alternate measures of suppliers’ relationship-specific investments and econometric models. Overall, our results indicate that some of the heterogeneity in managerial compensation can be attributed to characteristics of the firm’s supply-chain relations.