This paper attempts to address two questions: First, what is the relationship between a firm’s provision of incentives for its CEO and the CEO’s decision autonomy? Second, how does the CEO’s decision autonomy affect firm performance? Results from a simple principal‐agent model suggest that the relationship between CEO’s decision autonomy and incentive provision may vary across different decisions. We conduct our empirical analysis using World Bank Investment Climate Survey data from China. Our results show that: (i) firm’s use incentive compensation is negatively associated with CEO’s investment decision autonomy but positively associated with labor decision autonomy; and (ii) after controlling for the use of incentive compensation, CEO’s investment decision autonomy dampens, while labor decision autonomy boosts the firm’s performance. We conjecture that different level of agency costs associated with investment decision and labor decision might explain the above distinction.