Journal ArticleDOI
Managerial Expertise, Private Information, and Pay-Performance Sensitivity
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This paper characterizes optimal pay-performance sensitivities of compensation contracts for managers who have private information about their skills, and those skills affect their outside employment opportunities, and identifies plausible circumstances under which risk and incentives are positively associated.Abstract:
This paper characterizes optimal pay-performance sensitivities of compensation contracts for managers who have private information about their skills, and those skills affect their outside employment opportunities. The model presumes that the rate at which a manager's opportunity wage increases in his expertise depends on the nature of that expertise, i.e., whether it is general or firm specific. The analysis demonstrates that when managerial expertise is largely firm specific (general), the optimal pay-performance sensitivity is lower (higher) than its optimal value in a benchmark setting of symmetric information. Furthermore, when managerial skills are largely firm specific (general), the optimal pay-performance sensitivity decreases (increases) as managerial skills become a more important determinant of firm performance. Unlike the standard agency-theoretic prediction of a negative trade-off between risk and pay-performance sensitivity, this paper identifies plausible circumstances under which risk and incentives are positively associated. In addition to providing an explanation for why empirical tests of risk-incentive relationships have produced mixed results, the analysis generates insights that can be useful in guiding future empirical research.read more
Citations
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Journal ArticleDOI
CEO Expertise and the Design of Compensation Contracts: Evidence from Generalist versus Specialist CEOs
Chunbo Liu,Wei Shi,K.C. John Wei +2 more
TL;DR: In this paper, the authors conjecture that due to information asymmetry, generalist CEOs may overstate their ability in contracting with shareholders, and they find that the pay for generalist CEO should be more closely linked to firm performance.
Journal ArticleDOI
Real Incentive Effects of Soft Information
TL;DR: In this paper, the authors examine the real incentive effects of soft information in a dynamic agency with limited commitment, and provide sufficient conditions for soft information to have no real incentive effect.
Journal ArticleDOI
Deadline-based incentive contracts in project management with cost salience
TL;DR: It is found that moral hazard can weaken the extent of inverse impact caused by the existence of cost salience for the project manager, and it is more profitable to provide effort incentive when the contractor’s efforts are more productive or the project risk is in a higher level.
Journal ArticleDOI
Risiken und Nebenwirkungen der Offenlegungspflicht von Vorstandsbezügen: Individual- vs. Kollektivausweis
Robert F. Göx,Uwe Heller +1 more
TL;DR: In this paper, the Entwicklung der Vergutungspolitik innerhalb einer gegebenen Gruppe von Unternehmen is investigated.
Journal ArticleDOI
The Participation Constraint and CEO Equity Grants
TL;DR: The authors examine whether firms benchmark annual equity grants to compensation peers and whether meeting the participation constraint is a motive for meeting the goal of meeting the participants' participation constraint, and find that the majority of firms do so.
References
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Journal ArticleDOI
Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design
Bengt Holmstrom,Paul Milgrom +1 more
TL;DR: In this article, a principal-agent model that can explain why employment is sometimes superior to independent contracting even when there are no productive advantages to specific physical or human capital and no financial market imperfections to limit the agent's borrowings is presented.
Journal ArticleDOI
Performance Pay and Top Management Incentives
Kevin Murphy,Michael C. Jensen +1 more
TL;DR: For example, the authors estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth.
Book
Performance pay and top-management incentives
Michael C. Jensen,Kevin Murphy +1 more
TL;DR: For example, the authors estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth.
Journal ArticleDOI
A Theory of Incentives in Procurement and Regulation.
TL;DR: A Theory of Incentives in Procurement and Regulation (TIIN) as mentioned in this paper is a popular textbook for regulatory economics, with a particular focus on the regulation of natural monopolies such as military contractors, utility companies and transportation authorities.
Book
A Theory of Incentives in Procurement and Regulation
Jean Tirole,Jean-Jacques Laffont +1 more
TL;DR: A Theory of Incentives in Procurement and Regulation (TIIN) as mentioned in this paper is a popular textbook for regulatory economics, with a particular focus on the regulation of natural monopolies such as military contractors, utility companies and transportation authorities.
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