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Executive Compensation: Six Questions That Need Answering

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  • John M. Abowd
  • David S. Kaplan

Abstract

This article address six questions concerning executive compensation, drawing on recent advances in the study of executive compensation, including the role of stock and option holdings: How much does executive compensation cost the firm? How much is executive compensation worth to the recipient? How well does executive compensation work? What are the effects of executive compensation? How much executive compensation is enough? Could executive compensation be improved? Our discussion will focus on the role of agency theory, which predicts that stock-based compensation will align executive and shareholder interests by linking the executive's compensation directly to increases in the market value of the company.

Suggested Citation

  • John M. Abowd & David S. Kaplan, 1999. "Executive Compensation: Six Questions That Need Answering," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 145-168, Fall.
  • Handle: RePEc:aea:jecper:v:13:y:1999:i:4:p:145-168
    Note: DOI: 10.1257/jep.13.4.145
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    References listed on IDEAS

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    JEL classification:

    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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