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Dynamic CEO Compensation

delete2012-09-12
delete116
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OA
AI
A
Alex Edmans *
X
Xavier Gabaix
DOI：10.1111/j.1540-6261.2012.01768.xdelete
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Abstract

Abstract

En 中文
We study optimal compensation in a dynamic framework where the CEO consumes in multiple periods, can undo the contract by privately saving, and can temporarily inflate earnings. We obtain a simple closed-form contract that yields clear predictions for how the level and performance sensitivity of pay vary over time and across firms. The contract can be implemented by escrowing the CEOs pay into a Dynamic Incentive Account that comprises cash and the firms equity. The account features state-dependent rebalancing to ensure its equity proportion is always sufficient to induce effort, and time-dependent vesting to deter short-termism.
Keywords:
OPTIMAL INCENTIVE CONTRACTS
CONTINUOUS-TIME
EXECUTIVE-COMPENSATION
LIMITED-LIABILITY
SECURITY DESIGN
STOCK
PRINCIPAL
RISK
PAY
PROVISIONS

Journal

Journal of Finance cover
Journal of Finance
IF:
9.5
Papers:
4.0K
Citations:
5.0W

Organization

P
Princeton University
Scholars:
2.1W
Papers: 2.3W
Citations: 5.1W
N
New York University
Scholars:
4.4W
Papers: 3.9W
Citations: 5.8W
U
university of pennsylvania
Scholars:
9.2W
Papers: 7.8W
Citations: 153
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