Serial CEO Incentives and the Structure of Managerial Contracts
61 Pages Posted: 6 Mar 2008 Last revised: 31 Oct 2018
Date Written: December 1, 2010
I explore CEOs' incentives to select firm strategies and to acquire firm-specific skills when a few potential employers seeking to hire experienced CEOs create incentives for job-hopping. Several features of managerial compensation, such as benchmarking of pay to larger and more prestigious companies, payments unrelated to past performance, unrestricted stock awards for highly paid CEOs, long-term incentives, and higher pay in companies granting long-term incentives, emerge in the optimal contract. I argue that the model can jointly explain the surge in U.S. CEO compensation and the differences in the structure and the level of managerial compensation across countries and across firms within a country.
Keywords: Optimal contracts, executive compensation, managerial labor market, short-termism
JEL Classification: G32, J33, L14
Suggested Citation: Suggested Citation