Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay

35 Pages Posted: 20 May 2011

See all articles by Jesse M. Fried

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: April 18, 2011


This Article identifies a cost to public investors of tying executive pay to the future value of a firm’s stock - even its long-term value. In particular, such an arrangement can incentivize executives to engage in share repurchases (when the current stock price is low) and equity issuances (when the current stock price is high) that reduce “aggregate shareholder value,” the amount of value flowing to all the firm’s shareholders over time. The Article also puts forward a mechanism that ties executive pay to aggregate shareholder value and thereby eliminates the identified distortions.

Keywords: share repurchases, equity issuances, executive pay, stock, stock options, restricted stock, corporate governance, agency costs, overvalued equity, insider trading, payout policy, seasoned equity offerings, executive compensation, manipulation

JEL Classification: G32, G34, G35, K22, M12

Suggested Citation

Fried, Jesse M., Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay (April 18, 2011). Texas Law Review, Vol. 89, No. 5, p. 1113, 2011, Available at SSRN:

Jesse M. Fried (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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