Abstract

http://ssrn.com/abstract=937399
 
 

References (34)



 
 

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CEO Power, Compensation and Governance


Rui A. Albuquerque


Boston University - School of Management; Católica-Lisbon School of Business and Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Jianjun Miao


Boston University - Department of Economics

September 2006

CEPR Discussion Paper No. 5818

Abstract:     
This paper presents a contracting model of governance based on the premise that CEOs are the main promoters of governance change. CEOs use their power to extract higher pay or private benefits, and different governance structures are preferred by different CEOs as they favour one or the other type of compensation. The model explains why good countrywide investor protection breeds good firm governance and predicts a 'race to the top' in firm-governance quality after the Sarbanes-Oxley Act. However, such governance changes may be associated with higher rather than lower CEO pay as CEOs substitute away from private benefits. The model also provides an explanation for the observed correlation of CEO pay and firm governance based on CEO power. Finally, we discuss the optimality of introducing randomness in CEO hiring, for example, by evaluating CEOs based on qualitative characteristics, or soft skills, that are prone to diverse judgements.

Number of Pages in PDF File: 40

Keywords: CEO power, moral hazard, CEO compensation, investor protection

JEL Classification: G34, J33, K00

working papers series


Date posted: October 13, 2006  

Suggested Citation

Albuquerque, Rui A. and Miao, Jianjun, CEO Power, Compensation and Governance (September 2006). CEPR Discussion Paper No. 5818. Available at SSRN: http://ssrn.com/abstract=937399

Contact Information

Rui A. Albuquerque (Contact Author)
Boston University - School of Management ( email )
595 Commonwealth Avenue
Boston, MA MA 02215
United States
HOME PAGE: http://people.bu.edu/ralbuque/
Católica-Lisbon School of Business and Economics ( email )
Caminho da Palma de Cima
Lisbon, 1649-023
Portugal
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Jianjun Miao
Boston University - Department of Economics ( email )
270 Bay State Road
Boston, MA 02215
United States
617-353-6675 (Phone)
HOME PAGE: http://people.bu.edu/miaoj
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References:  34
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