Abstract

http://ssrn.com/abstract=1361797
 
 

References (59)



 
 

Citations (31)



 


 



Dynamic CEO Compensation


Alex Edmans


London Business School - Institute of Finance and Accounting; University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Xavier Gabaix


New York University - Stern School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Tomasz Sadzik


New York University (NYU)

Yuliy Sannikov


University of California, Berkeley - Department of Economics; Princeton University - Department of Economics

September 30, 2011

Journal of Finance 67(5), 1603-1647, October 2012

Abstract:     
We study optimal compensation in a fully dynamic framework where the CEO consumes in multiple periods, can undo the contract by privately saving, and can temporarily inflate earnings. We obtain a simple closed-form contract that yields clear predictions for how the level and performance-sensitivity of pay varies over time and across firms. The contract can be implemented by a "Dynamic Incentive Account": the CEO's expected pay is escrowed into an account that comprises cash and the firm's equity. The account features state-dependent rebalancing to ensure its equity proportion is always sufficient to induce effort, and time-dependent vesting to deter short-termism.

Number of Pages in PDF File: 63

Keywords: Contract theory, executive compensation, incentives, principal-agent problem, private saving, manipulation, vesting

JEL Classification: D2, D3, G34, J3

Accepted Paper Series





Download This Paper

Date posted: March 18, 2009 ; Last revised: December 20, 2013

Suggested Citation

Edmans, Alex and Gabaix, Xavier and Sadzik, Tomasz and Sannikov, Yuliy, Dynamic CEO Compensation (September 30, 2011). Journal of Finance 67(5), 1603-1647, October 2012. Available at SSRN: http://ssrn.com/abstract=1361797

Contact Information

Alex Edmans (Contact Author)
London Business School - Institute of Finance and Accounting ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
University of Pennsylvania - The Wharton School ( email )
3733 Spruce Street
Philadelphia, PA 19104-6374
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Xavier Gabaix
New York University - Stern School of Business ( email )
Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY 10012-1126
United States
HOME PAGE: http://pages.stern.nyu.edu/~xgabaix/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Tomasz Sadzik
New York University (NYU) ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
Yuliy Sannikov
University of California, Berkeley - Department of Economics ( email )
549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
Princeton University - Department of Economics
Princeton, NJ 08544-1021
United States

Feedback to SSRN


Paper statistics
Abstract Views: 9,421
Downloads: 2,527
Download Rank: 2,318
References:  59
Citations:  31

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.344 seconds