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Hard Debt, Soft CEO’s and Union Rents

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Linus Wilson

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Abstract

Sometimes shareholders are better off delegating to a CEO with different objectives than their own. A top manager motivated to share surpluses with workers-a "soft" CEO-can encourage union members to adopt efficient production methods. Bond covenants may constrain managers from acquiescing to union wage demands. Nevertheless, we argue that unions can win higher wages by altering the non-shirking constraint. Resistance to monitoring leads to deadweight losses that a "soft" CEO can prevent. In this context, CEO incentive contracts with limited upsides, lower levels of pay, and entrenchment protections are advocated.

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Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2003fe12.

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Date of creation: 2003
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Handle: RePEc:sbs:wpsefe:2003fe12

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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