Based on both agency theory and information-processing theory, this study examines the moderating effects of four contextual factors (industrial concentration, product substitutability, market size, and entry costs) on the relationship between diversification and CEO compensation. I propose that these contextual factors can affect the relationship between diversification strategy and CEO compensation. This study tests the competing hypotheses using the Taiwanese non-electronics industry data for the period 1998-2004. The results show that higher degree of product substitutability negatively moderates the relationship between industrial diversification and CEO compensation, consistent with the agency theory. Besides, both lower entry costs and larger market size positively moderate the relationship between industrial diversification and CEO compensation, consistent with the information-processing theory.