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
Contractual Incentives and Career Concerns
TL;DR: In this paper, a multi-period model of optimal contracting and career concerns is presented, and it is shown that long-term contracting with renegotiation dominates short-term contracts if there is non-contractible information.
Journal ArticleDOI
Inducement Grants, Hiring Announcements and Adverse Selection for New CEOs
TL;DR: In this article, the authors examine how firms design compensation contracts to mitigate adverse selection problems when hiring a new CEO, focusing on the sensitivity of inducement grants to the new CEO announcement return.
Financial reporting, *regulation and information asymmetry
TL;DR: In this article, financial reporting, regulation, and information asymmetry is discussed in the context of financial reporting and asymmetry, and the authors propose a solution to the problem.
Journal ArticleDOI
An Agency Theoretic Formulation of Organizational Control Theory
TL;DR: In this article, the authors propose an analytical model that integrates two parallel independent streams of the literature, agency theory and organizational control theory, and provide new insights into agency theory by introducing the concept of a congruent agent, and new insights in organizational control by using contracting tools to model behavior and outcome forms of controls.
Journal ArticleDOI
Optimal Overhead Cost Allocation in an Agency Model with Moral Hazard and Private Information
TL;DR: In this article, the authors developed a model of moral hazard and private information to explore the properties of efficient cost allocations and showed that the optimal cost allocation charge is lower than the resource cost as a result of the need to compensate the agent for the uncontrollable risk.
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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