We examine the determinants and consequences of adopting anti-hedge policies (AHPs) by corporate boards. These policies prohibit managers from unwinding the price-sensitive features in their original compensation by hedging the equity-based components using financial derivative instruments. Using textual analysis of firm disclosures to identify AHP, we find that firms with stronger internal and external governance mechanisms, in terms of board monitoring, analyst coverage, and auditor quality, are more likely to adopt AHPs. In addition, we find that firms with CEOs who are longer tenured and male as well as those with higher insider ownership are less likely to adopt AHPs, suggesting that these types of managers may exert more influence on the board so as to prevent their firms from adopting a policy that restricts compensation hedging. More importantly, our consequences analysis shows that managerial interests are more closely aligned with those of shareholders as a result of AHP adoption. Such adoption leads to lower operating volatility and a reduction in investments, particularly for firms prone to overinvestment. Additional tests reveal that managers decrease firm leverage and increase share repurchases after an AHP adoption. Overall, our study suggests that AHPs are an effective means of maintaining the originally-intended incentive alignment between managers and shareholders.