This paper reconciles three pronounced trends in U.S. corporate governance: the increase in pay levels for top executives, the increasing prevalence of appointing CEOs through external hiring rather than internal promotions, and the increased prevalence of hiring outside CEOs with prior...

A thorough understanding of internal incentive structures is critical to developing a viable theory of the firm, since these incentives determine to a large extent how individuals inside an organization behave. Many common features of organizational incentive systems are not easily explained by...

Our estimates of the pay-performance relation (including pay, options, stockholdings, and dismissal) for chief executive officers indicate that CEO wealth changes $3.25 for every $1,000 change in shareholder wealth. Although the incentives generated by stock ownership are large relative to pay...

We employ a certainty-equivalence framework to analyze the cost, value and pay/performance sensitivity of non-tradable options held by undiversified, risk-averse executives. We derive quot;Executive Valuequot; lines, the risk-adjusted analogs to Black-Scholes lines. We show that distinguishing...

Ittner, Lambert, and Larcker (J. Accounting Economics (2003)) present compelling evidence that new economy firms rely more on stock-based compensation than do old economy firms, based on 1998 and 1999 data from a proprietary sample of companies. I complement the ILL results by analyzing data...

In 1991, defense contractor General Dynamics (GD) adopted an objective of creating shareholder value through downsizing, restructuring, and exit. Facilitating GD's strategy were a new management team and compensation plans that tied executive pay to shareholder wealth creation. The plans became...

In 1991, defense contractor General Dynamics engaged a new management team which adopted an explicit corporate objective of creating shareholder value. The company tied executive compensation to shareholder wealth creation, and subsequently implemented a strategy that included downsizing,...

Executive compensation consultants face potential conflicts of interest that can lead to higher recommended levels of CEO pay, including the desires to ldquo;cross-sellrdquo; services and to secure ldquo;repeat business.rdquo; We find evidence in both the US and Canada that CEO pay is higher in...

The trouble with options is that too many options are granted to too many people. Most options are granted below the top-executive level, and options are often an inefficient way to attract, retain and motivate executives and (especially) lower-level employees. Why, then, are options so...