CEO Incentives and Firm Size
We develop a model that clarifies how to measure CEO incentive strength and how to reconcile the enormous differences in pay sensitivities between executives in large and small firms. The crucial parameter is shown to be the elasticity of CEO productivity with respect to firm size. We find that CEO marginal products rise significantly with firm size (confirming Rosen's conjecture that CEOs of large firms have a "chain letter" effect on firm performance), and overall CEO incentives are roughly constant, or decline slightly, with firm size. We employ a multitask model to discuss implications for the design of control systems.
References listed on IDEAS
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- Darius Palia, 2000. "The Impact of Regulation on CEO Labor Markets," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 165-179, Spring. Full references (including those not matched with items on IDEAS)
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