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Disentangling managerial incentives from a dynamic perspective: The role of stock grants

Author

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  • Amal Hili
  • Didier Laussel
  • Ngo Van Long

Abstract

We analyse the optimal contract between a risk†averse manager and the initial shareholders in a two†period model where the manager's investment effort, carried out in period 1, and his or her current effort, carried out in period 2, both impact the second†period profit, so that it may be difficult to disentangle the incentives for these two types of effort. We show that stock grants play different roles according to whether the signal of investment effort is less noisy, or noisier, than that of current effort. We determine simultaneously the optimal stock grants and the optimal restrictions on sales of shares.

Suggested Citation

  • Amal Hili & Didier Laussel & Ngo Van Long, 2017. "Disentangling managerial incentives from a dynamic perspective: The role of stock grants," Pacific Economic Review, Wiley Blackwell, vol. 22(5), pages 743-771, December.
    • Handle: RePEc:bla:pacecr:v:22:y:2017:i:5:p:743-771
    DOI: 10.1111/1468-0106.12243
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    Cited by:

    1. is not listed on IDEAS
    2. Wang, Cheng, 1997. "Incentives, CEO Compensation, and Shareholder Wealth in a Dynamic Agency Model," Journal of Economic Theory, Elsevier, vol. 76(1), pages 72-105, September.

    More about this item

    JEL classification:

    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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