We show that, in the presence of correlated investment opportunities across firms, risk sharing between firm shareholders and firm managers leads to compensation contracts that include relative performance evaluation. These contracts bias investment choices towards correlated investment...

We show that, in the presence of correlated investment opportunities across firms, risk sharing between firm shareholders and firm managers leads to compensation contracts that include relative performance evaluation. These contracts bias investment choices towards correlated investment...

How does the mandated disclosure of executive compensation affect the dynamics of compensation within a peer group of firms? We argue in this paper that, under plausible conditions, it will trigger a ratchet effect in the mean level of executive pay within the peer group and is accompanied, hand...

This paper illustrates why some firms hire compensation consultants while others do not, and the implications for CEO compensation. We consider a matching model of firms and CEOs, in which firms are governed by effective boards that act on behalf of shareholders, non-conflicting consultants...