Note on the Calibration of Executive Compensation Models

Dittmann, Ingolf; Zhang, Dan; Maug, Ernst G.; Spalt, Oliver G.

doi:10.2139/ssrn.1876670

Abstract

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Note on the Calibration of Executive Compensation Models

Ingolf Dittmann

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; Erasmus Research Institute of Management (ERIM); European Corporate Governance Institute (ECGI)

Ernst G. Maug

University of Mannheim - Department of Business Administration and Finance; European Corporate Governance Institute (ECGI)

Tilburg University - Department of Finance

September 17, 2011

Abstract:
This note is intended for researchers who want to implement the Dittmann and Maug (2007) calibration method. This method allows to test a complete principal-agent model with individual-level data on executive pay. The method consists of two steps. First, the principal-agent model is simplified so that it can be calibrated to the data for an individual CEO. After that, the calibrated model yields predictions about the optimal contract of this CEO, and these predictions can then be compared to observed contracts. This note contains step-by-step instructions on how to replicate the core results of Dittmann and Maug (2007) and Dittmann, Maug, and Spalt (2010). We report intermediate results for an example CEO, so that different parts of the program code can be tested individually.

Number of Pages in PDF File: 17

Keywords: Stock Options, Executive Compensation, Loss Aversion

JEL Classification: G30, M52

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Date posted: July 5, 2011 ; Last revised: November 23, 2011

Suggested Citation

Dittmann, Ingolf, Zhang, Dan, Maug, Ernst G. and Spalt, Oliver G., Note on the Calibration of Executive Compensation Models (September 17, 2011). Available at SSRN: http://ssrn.com/abstract=1876670 or http://dx.doi.org/10.2139/ssrn.1876670

Contact Information

Ingolf Dittmann (Contact Author) Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email ) P.O. Box 1738 3000 DR Rotterdam, NL 3062 PA Netherlands +31 10 4081283 (Phone) +31 10 4089165 (Fax) HOME PAGE: http://people.few.eur.nl/dittmann/
Tinbergen Institute P.O. Box 1738 3000 DR Rotterdam Netherlands
Erasmus Research Institute of Management (ERIM) P.O. Box 1738 3000 DR Rotterdam Netherlands
European Corporate Governance Institute (ECGI) ( email ) c/o ECARES ULB CP 114 B-1050 Brussels Belgium
Dan Zhang BI Norwegian Business School ( email ) Nydalsveien 37 Oslo, 0442 Norway HOME PAGE: http://www.bi.edu/research/academic-homepage/?ansattid=A1210112
Ernst G. Maug University of Mannheim - Department of Business Administration and Finance ( email ) D-68131 Mannheim Germany HOME PAGE: http://cf.bwl.uni-mannheim.de
European Corporate Governance Institute (ECGI) c/o ECARES ULB CP 114 B-1050 Brussels Belgium
Oliver G. Spalt Tilburg University - Department of Finance ( email ) Department of Finance Tilburg University Tilburg, 5000 LE Netherlands +31 13 466 3545 (Phone) HOME PAGE: http://www.oliverspalt.com

Abstract

Note on the Calibration of Executive Compensation Models

Ingolf Dittmann

Dan Zhang

Ernst G. Maug

Oliver G. Spalt

Date posted: July 5, 2011 ; Last revised: November 23, 2011

Suggested Citation

Contact Information

Ingolf Dittmann (Contact Author)

Dan Zhang

Ernst G. Maug

Oliver G. Spalt