Abstract

http://ssrn.com/abstract=1028250
 
 

References (34)



 


 



Stock-Based Pay: An Incentive for Performance or a Compensation for Competence? How to Compensate a Manager When He is Competent?


Pascal Louvet


University of Grenoble - Institut d'Administration des Entreprises Grenoble (IAE Grenoble)

Ollivier Taramasco


French National Center for Scientific Research (CNRS) - Centre de Recherches Appliquées à la Gestion (CERAG)

November 7, 2007


Abstract:     
This article presents a model describing an optimal compensation contract for the manager. The model is based on an appropriate balance of power between the shareholder who holds the right to receive dividends and the right to dismiss the manager and the manager who holds the right to wages and a discretionary right to withdrawals. An optimal model is defined from three viewpoints: that of the shareholder, the manager and the economy. The model shows that an optimal contract depends on the competence of the manager and the following elements: threat of take-overs, severance costs, reputation costs. In all cases, dismissal acts as an efficient natural protection against unreasonable discretionary withdrawals. Stock-based pay must be viewed more as a method for wealth distribution between human capital and financial capital than as an incentive mechanism for performance.

Number of Pages in PDF File: 45

Keywords: governance, compensation, manager, shareholder, real option, human capital

JEL Classification: C70, G32, G38

working papers series





Download This Paper

Date posted: November 7, 2007  

Suggested Citation

Louvet, Pascal and Taramasco, Ollivier, Stock-Based Pay: An Incentive for Performance or a Compensation for Competence? How to Compensate a Manager When He is Competent? (November 7, 2007). Available at SSRN: http://ssrn.com/abstract=1028250 or http://dx.doi.org/10.2139/ssrn.1028250

Contact Information

Pascal Louvet
University of Grenoble - Institut d'Administration des Entreprises Grenoble (IAE Grenoble) ( email )
Grenoble
France
Ollivier Taramasco (Contact Author)
French National Center for Scientific Research (CNRS) - Centre de Recherches Appliquées à la Gestion (CERAG) ( email )
150 rue de la Chimie, BP47
GRENOBLE CEDEX, 38040
France
Feedback to SSRN


Paper statistics
Abstract Views: 680
Downloads: 173
Download Rank: 102,252
References:  34

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.313 seconds