Compensation of executives by means of equity has long been seen as a means to tie executives' income to company performance, and thus as a solution to the principal-agent dilemma created by the separation of ownership and management in publicly owned companies. The overwhelming part of such...

Classic financial agency theory recommends compensation through stock options rather than shares to induce risk neutrality in otherwise risk averse agents. In an experiment, we find that subjects acting as executives do also take risks that are excessive from the perspective of shareholders if...

This study adopts behavioral contract theory through a mathematical model and clarifies the situation in which a fixed–salary contract is preferable to incentives–based one for the principal. Theoretically, the expected utility for the principal is higher under an incentives–based contract...

This paper investigates the impact of the target chief executive officer’s (CEO) postmerger position on the purchase premium and target shareholders’ abnormal returns around the announcement of the deal in a sample of bank mergers during the period 1990–2004. We find evidence that the...

This study examines the determinants of CEO compensation using data from a nationally representative sample of privately held U.S. corporations. We find that (i) the pay-size elasticity is much larger for privately held firms than for the publicly traded firms on which previous research has...

Although stock options are commonly observed in chief executive o±cer (CEO) compensation contracts, there is theoretical controversy about whether stock options are part of the optimal contract. Using a sample of Fortune 500 companies, we solve an agency model calibrated to the company-specific...

When designing incentives for a manager, the trade-off between insurance and a "good" allocation of effort across various tasks is often identified with a trade-off between the responsiveness (sensitivity, precision, signal-noise ratio) of the performance measure and its similarity (congruity,...

We present evidence on the effect of social connections between workers and managers on productivity in the workplace. To evaluate whether the existence of social connections is beneficial to the firm's overall performance, we explore how the effects of social connections vary with the strength...