Executive Compensation: The View from General Equilibrium

We study the dynamic general equilibrium of an economy where risk averse shareholders delegate the management of the ﬁrm to risk averse managers. The optimal contract has two main components: an incentive component corresponding to a non-tradable equity position and a variable salary component indexed to the aggregate wage bill and to aggregate dividends. Tying a managers compensation to the performance of her own ﬁrm ensures that her interests are aligned with the goals of ﬁrm owners and that maximizing the discounted sum offuture dividends will be her objective. Linking managers compensation to overall economic performance is also required to make sure that managers use the appropriate stochastic discount factor to value those future dividends.

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Year of publication:	2007-09-01
Authors:	Danthine, Jean-Pierre ; Donaldson, John B.
Institutions:	Institut für Schweizerisches Bankwesen <Zürich>
Subject:	Anreiz \| Kontrakttheorie

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Extent:	300032 bytes 28 p. application/pdf
Series:	Universität Zürich - Institut für schweizerisches Bankwesen Working paper ; 432 (2007)
Type of publication:	Book / Working Paper
Language:	English
Classification:	E32 - Business Fluctuations; Cycles ; E44 - Financial Markets and the Macroeconomy ; Pay salaries and social benefits ; Individual Working Papers, Preprints ; No country specification
Source:	USB Cologne (business full texts)

Persistent link: https://www.econbiz.de/10005857776