Journal ArticleDOI
Managerial Expertise, Private Information, and Pay-Performance Sensitivity
Reads0
Chats0
TLDR
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
More filters
Posted Content
The Relation between CEO Compensation and Past Performance
TL;DR: This article developed a simple two-period principal-agent model with moral hazard and adverse selection and test theoretical predictions using CEO compensation data from 1993-2006, finding that salary (bonus) is positively (negatively) associated with past performance for both continuing and newly-hired CEOs.
Journal ArticleDOI
The Relation between CEO Compensation and Past Performance
TL;DR: This paper developed a simple two-period principal-agent model with moral hazard and adverse selection and test theoretical predictions using CEO compensation data from 1993-2006, finding that salary (bonus) is positively (negatively) associated with past performance for both continuing and newly hired CEOs.
Posted Content
Implications of Power: When the CEO Can Pressure the CFO to Bias Reports
TL;DR: This paper developed an agency model to examine the effects of a CEO's power to pressure a CFO to bias a performance measure, like earnings, which has implications for incentive compensation, reporting quality, firm value, and information rents.
Journal ArticleDOI
Talent Management and Career Development: What it Takes to Get Promoted
TL;DR: This paper investigated managerial skills that are essential for managers' job promotion and found that a manager's own experience, expertise, and network size positively affect promotion odds, while strong colleagues decrease promotion odds.
Journal ArticleDOI
Implications of power: When the CEO can pressure the CFO to bias reports
TL;DR: This paper developed an agency model to examine the effects of a CEO's power to pressure a CFO to bias a performance measure, like earnings, which has implications for incentive compensation, reporting quality, firm value, and information rents.
References
More filters
Journal ArticleDOI
Optimal Information Asymmetry
Madhav V. Rajan,Richard Saouma +1 more
TL;DR: In this paper, the authors explore how varying levels of pre-contract, asymmetric information affect the owner-manager relationship and show that when information can be communicated internally, the optimal strength of managerial incentives unambiguously decreases as the manager bec...
Journal ArticleDOI
Executive compensation in the UK
TL;DR: A review of executive compensation with respect to the UK can be found in this paper, where the authors emphasise the need to keep the broader context in mind when reviewing issues ofExecutive compensation, and offer a framework of analysis which is broader than that used in the existing literature.
Related Papers (5)
Performance Measure Congruity and Diversity in Multi-Task Principal/Agent Relations
Gerald A. Feltham,Jim Xie +1 more
Sensitivity, Precision, and Linear Aggregation of Signals for Performance Evaluation
Rajiv D. Banker,Srikant M. Datar +1 more