Executive Compensation and Stock Options: AnInconvenient Truth

We reexamine the issue of executive compensation within a gen-eral equilibrium production context. Intertemporal optimality placesstrong restrictions on the form of a representative manager's compen-sation contract, restrictions that appear to be incompatible with thefact that the bulk of many high-pro¯le managers' compensation is inthe form of various options and option-like rewards. We thereforemeasure the extent to which a convex contract alone can induce themanager to adopt near-optimal investment and hiring decisions.[...]

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Year of publication:	2008-06-14
Authors:	Danthine, Jean-Pierre ; Donaldson, John B.
Institutions:	National Centre of Competence in ResearchFinancial Valuation and Risk Management
Subject:	Corporate Governance \| Vertrag \| Realer-Konjunkturzyklus-Theorie \| business cycle

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1 Introduction
2 The Model and Benchmark Optimal Contract
2.1 The model
3 Suboptimal Contracting: In Search of a QuietLife!
4 Convex Performance-based Contracts
4.1 Contracts with no salary component
4.2 Convex contracts in conjunction with a fixed salary component
5 Literature Review
6 Conclusions
References

Persistent link: https://www.econbiz.de/10005868990