IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Serial CEO incentives and the structure of managerial contracts

  • Giannetti, Mariassunta

I explore CEOs' incentives to select firm strategies and to acquire firm-specific skills when CEOs have job-hopping opportunities. Several features of managerial compensation, such as benchmarking of pay to larger and more prestigious companies, payments unrelated to past performance, unrestricted stock awards for highly paid CEOs, long-term incentives, and higher pay in companies granting long-term incentives, emerge in the optimal contract. I argue that the model can explain the change in the structure and the surge in US CEO compensation as well as differences across countries and across firms within a country.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S1042957311000143
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 20 (2011)
Issue (Month): 4 (October)
Pages: 633-662

as
in new window

Handle: RePEc:eee:jfinin:v:20:y:2011:i:4:p:633-662
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622875

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Efraim Benmelech & Eugene Kandel & Pietro Veronesi, 2010. "Stock-Based Compensation and CEO (Dis)Incentives," The Quarterly Journal of Economics, Oxford University Press, vol. 125(4), pages 1769-1820.
  2. Faulkender, Michael & Yang, Jun, 2010. "Inside the black box: The role and composition of compensation peer groups," Journal of Financial Economics, Elsevier, vol. 96(2), pages 257-270, May.
  3. Alex Edmans & Xavier Gabaix, 2011. "The Effect of Risk on the CEO Market," Review of Financial Studies, Society for Financial Studies, vol. 24(8), pages 2822-2863.
  4. Paul Oyer, 2004. "Why Do Firms Use Incentives That Have No Incentive Effects?," Journal of Finance, American Finance Association, vol. 59(4), pages 1619-1650, 08.
  5. Marko Tervio, 2008. "The Difference That CEOs Make: An Assignment Model Approach," American Economic Review, American Economic Association, vol. 98(3), pages 642-68, June.
  6. Narayanan, M. P., 1996. "Form of Compensation and Managerial Decision Horizon," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(04), pages 467-491, December.
  7. Kaplan, Steven N. & Minton, Bernadette A., 2006. "How Has CEO Turnover Changed? Increasingly Performance Sensitive Boards and Increasingly Uneasy CEOs," Working Paper Series 2006-7, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  8. Malcomson, J.M., 1997. "Contracts, hold-up and labor markets," Discussion Paper Series In Economics And Econometrics 9703, Economics Division, School of Social Sciences, University of Southampton.
  9. Andrei Shleifer & Fausto Panunzi & Mike Burkart, 2002. "Family firms," LSE Research Online Documents on Economics 24926, London School of Economics and Political Science, LSE Library.
    • Mike Burkart & Fausto Panunzi & Andrei Shleifer, 2003. "Family Firms," Journal of Finance, American Finance Association, vol. 58(5), pages 2167-2202, October.
  10. John M. Abowd & Michael Bognanno, 1995. "International Differences in Executive and Managerial Compensation," NBER Chapters, in: Differences and Changes in Wage Structures, pages 67-104 National Bureau of Economic Research, Inc.
  11. Bengt Holmstrom, 1999. "Managerial Incentive Problems: A Dynamic Perspective," NBER Working Papers 6875, National Bureau of Economic Research, Inc.
  12. Edmans, Alex & Gabaix, Xavier & Sadzik, Tomasz & Sannikov, Yuliy, 2009. "Dynamic Incentive Accounts," CEPR Discussion Papers 7497, C.E.P.R. Discussion Papers.
  13. Viral V. Acharya & Paolo F. Volpin, 2010. "Corporate Governance Externalities," Review of Finance, European Finance Association, vol. 14(1), pages 1-33.
  14. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
  15. Gibbons, Robert & Murphy, Kevin J, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 468-505, June.
  16. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
  17. Scott Schaefer, 1998. "The Dependence Of Pay--Performance Sensitivity On The Size Of The Firm," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 436-443, August.
  18. Michael L. Bognanno, 2010. "executive compensation," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  19. George-Levi Gayle & Robert A. Miller, 2005. "Has Moral Hazard Become a More Important Factor in Managerial Compensation?," GSIA Working Papers 2005-E58, Carnegie Mellon University, Tepper School of Business.
  20. Xavier Gabaix & Augustin Landier & Alex Edmans, 2008. "A Calibratable Model of Optimal CEO Incentives in Market Equilibrium," 2008 Meeting Papers 430, Society for Economic Dynamics.
  21. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
  22. Benjamin E. Hermalin, 2005. "Trends in Corporate Governance," Journal of Finance, American Finance Association, vol. 60(5), pages 2351-2384, October.
  23. Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 169-182.
  24. Jeremy C. Stein, 1989. "Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 655-669.
  25. Bhattacharya, Utpal & Ravikumar, B, 1997. "From Cronies to Professionals: The Evolution of Family Firms," MPRA Paper 22939, University Library of Munich, Germany, revised Jan 2004.
  26. Steven N. Kaplan & Joshua Rauh, 2010. "Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?," NBER Chapters, in: Corporate Governance National Bureau of Economic Research, Inc.
  27. John M. Abowd & David S. Kaplan, 1999. "Executive Compensation: Six Questions that Need Answering," NBER Working Papers 7124, National Bureau of Economic Research, Inc.
  28. Simi Kedia & Thomas Philippon, 2009. "The Economics of Fraudulent Accounting," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2169-2199, June.
  29. Bryan, Stephen & Hwang, LeeSeok & Lilien, Steven, 2000. "CEO Stock-Based Compensation: An Empirical Analysis of Incentive-Intensity, Relative Mix, and Economic Determinants," The Journal of Business, University of Chicago Press, vol. 73(4), pages 661-93, October.
  30. Camelia M. Kuhnen & Andrea L. Eisfeldt, 2010. "CEO Turnover in a Competitive Assignment Framework," 2010 Meeting Papers 1081, Society for Economic Dynamics.
  31. Lucian Bebchuk & Yaniv Grinstein, 2005. "The Growth of Executive Pay," NBER Working Papers 11443, National Bureau of Economic Research, Inc.
  32. Kevin J. Murphy & Ján Zábojník, 2004. "CEO Pay and Appointments: A Market-Based Explanation for Recent Trends," American Economic Review, American Economic Association, vol. 94(2), pages 192-196, May.
  33. Bengt Holmström, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 169-182.
  34. Ke, Bin & Huddart, Steven & Petroni, Kathy, 2003. "What insiders know about future earnings and how they use it: Evidence from insider trades," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 315-346, August.
  35. Shivaram Rajgopal & Terry Shevlin & Valentina Zamora, 2006. "CEOs' Outside Employment Opportunities and the Lack of Relative Performance Evaluation in Compensation Contracts," Journal of Finance, American Finance Association, vol. 61(4), pages 1813-1844, 08.
  36. Kevin J. Murphy & Jan Zabojnik, 2006. "Managerial Capital and the Market for CEOs," Working Papers 1110, Queen's University, Department of Economics.
  37. Hayes, Rachel M. & Schaefer, Scott, 2009. "CEO pay and the Lake Wobegon Effect," Journal of Financial Economics, Elsevier, vol. 94(2), pages 280-290, November.
  38. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 841-879.
  39. Bengt Holmstrom & Joan Ricart i Costa, 1986. "Managerial Incentives and Capital Management," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 835-860.
  40. Stein, Jeremy C, 1988. "Takeover Threats and Managerial Myopia," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 61-80, February.
  41. Smith, Clifford Jr. & Watts, Ross L., 1992. "The investment opportunity set and corporate financing, dividend, and compensation policies," Journal of Financial Economics, Elsevier, vol. 32(3), pages 263-292, December.
  42. Carola Frydman & Raven E. Saks, 2008. "Executive Compensation: A New View from a Long-Term Perspective, 1936-2005," NBER Working Papers 14145, National Bureau of Economic Research, Inc.
  43. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
  44. Murphy, Kevin J., 2003. "Stock-based pay in new economy firms," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 129-147, January.
  45. Ittner, Christopher D. & Lambert, Richard A. & Larcker, David F., 2003. "The structure and performance consequences of equity grants to employees of new economy firms," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 89-127, January.
  46. Patrick Bolton & Jose A. Scheinkman & Wei Xiong, 2003. "Executive Compensation and Short-termist Behavior in Speculative Markets," Levine's Working Paper Archive 506439000000000124, David K. Levine.
  47. Narayanan, M P, 1985. " Managerial Incentives for Short-term Results," Journal of Finance, American Finance Association, vol. 40(5), pages 1469-84, December.
  48. Conyon, Martin J & Murphy, Kevin J, 2000. "The Prince and the Pauper? CEO Pay in the United States and United Kingdom," Economic Journal, Royal Economic Society, vol. 110(467), pages F640-71, November.
  49. Martin J. Conyon & John E. Core & Wayne R. Guay, 2011. "Are U.S. CEOs Paid More Than U.K. CEOs? Inferences from Risk-adjusted Pay," Review of Financial Studies, Society for Financial Studies, vol. 24(2), pages 402-438.
  50. Seyhun, H Nejat, 1992. "The Effectiveness of the Insider-Trading Sanctions," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 149-82, April.
  51. Alex Edmans & Xavier Gabaix & Augustin Landier, 2009. "A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium," Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 4881-4917, December.
  52. Kole, Stacey R., 1997. "The complexity of compensation contracts," Journal of Financial Economics, Elsevier, vol. 43(1), pages 79-104, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jfinin:v:20:y:2011:i:4:p:633-662. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.