This paper investigates whether observed executive compensation contracts are designed to provide risk-taking incentives in addition to effort incentives. We develop a stylized principal-agent model that captures the interdependence between firm risk and managerial incentives. We calibrate the...

Do employees who compare themselves to the CEO matter for executive compensation? We hypothesize that employees have relative wealth concerns and compare their wage to the CEO's pay. Using German establishment-level wage data, we indeed show that employee wages are increasing in CEO...

We analyze the efficiency of indexing executive pay by calibrating the standard model of executive compensation to a large sample of US CEOs. The main finding is that benefits from indexing stock options are small and that fully indexing them would increase compensation costs by more than 50%...

This discussion provides several explanations for the evidence presented in Balachandran and Mohanram (2010) that are consistent with efficient contracting. I also show that - contrary to the suggestion of the title - CEOs do not benefit from value destroying growth in earnings. Finally, I argue...

We analyze several proposals to restrict CEO compensation and calibrate two models of executive compensation that describe how firms would react to different types of restrictions. We find that many restrictions would have unintended consequences. Restrictions on total realized (ex-post) payouts...

This paper investigates whether observed executive compensation contracts are designed to provide risk-taking incentives in addition to effort incentives. We develop a stylized principal-agent model that captures the interdependence between firm risk and managerial incentives. We calibrate the...