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Hard Debt, Soft CEO’s and Union Rents

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  • Linus Wilson

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.

Suggested Citation

  • Linus Wilson, 2003. "Hard Debt, Soft CEO’s and Union Rents," OFRC Working Papers Series 2003fe12, Oxford Financial Research Centre.
  • Handle: RePEc:sbs:wpsefe:2003fe12
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    File URL: http://www.finance.ox.ac.uk/file_links/finecon_papers/2003fe12.pdf
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    References listed on IDEAS

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    Cited by:

    1. Linus Wilson, 2014. "Managerial ownership with rent-seeking employees," Annals of Finance, Springer, vol. 10(3), pages 375-394, August.

    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • 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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