Abstract

http://ssrn.com/abstract=2071301
 
 

References (43)



 
 

Citations (3)



 


 



Industry Structure, Executive Pay, and Short-Termism


John E. Thanassoulis


University of Warwick - Warwick Business School; Oxford-Man Institute, University of Oxford; Nuffield College, University of Oxford

May 31, 2012

Forthcoming, Management Science.

Abstract:     
This study outlines a new theory linking industry structure to optimal employment contracts and executive short-termism. Firms hire their executives using optimal contracts derived within a competitive labour market. To motivate effort firms must use some variable remuneration. Such remuneration introduces a myopia problem: an executive would wish to inflate early expected earnings at some risk to future profits. To manage this short-termism some bonus pay is deferred. Convergence in size amongst firms makes the cost of managing the myopia problem grow faster than the cost of managing the effort problem. Eventually the optimal contract jumps from one deterring myopia to one tolerating myopia. Under some conditions the industry partitions: the largest firms hire executives on contracts tolerant of myopia, smaller firms ensure myopia is ruled out.

Number of Pages in PDF File: 30

Keywords: myopia, moral hazard, compensation, bonuses, bankers' pay, deferred pay, vested pay

JEL Classification: L14, G34, G21

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Date posted: June 2, 2012 ; Last revised: March 18, 2014

Suggested Citation

Thanassoulis, John E., Industry Structure, Executive Pay, and Short-Termism (May 31, 2012). Forthcoming, Management Science.. Available at SSRN: http://ssrn.com/abstract=2071301 or http://dx.doi.org/10.2139/ssrn.2071301

Contact Information

John E. Thanassoulis (Contact Author)
University of Warwick - Warwick Business School ( email )
Coventry CV4 7AL
United Kingdom
Oxford-Man Institute, University of Oxford ( email )
Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom
Nuffield College, University of Oxford ( email )
New Road
Oxford, OX1 1NF
United Kingdom
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