We analyze the impact of social comparison on optimal contract design under imperfect labor market competition for managerial talent. Adding a disutility of social comparison as induced by a ranking of verifiable efforts to the multi-task model by Bénabou and Tirole (2016), we demonstrate that...

Chatty and Saez (2004) argued that more Principal-Agent models explaining firm dividend policy are expected and subsequently offered a model of dividend policy that includes a tax on dividends and agency problems (Chatty and Saez (2007)). In this paper we extent their model by adding a tax on...

Clawbacks are retractions of previously-awarded bonuses. In our model, the manager takes a first-period effort that stochastically determines a first-period signal and a second-period cash flow. Both the cash flow and the signal are noisy indicators of effort. The agent can manipulate the...

The two major paradigmsin the theoretical agency literature aremoral hazard (i.e., hidden action)and adverseselection (i.e., hiddeninformation). Prior research typically solves these problemsin isolation, as opposed to simultaneouslyincorporating both adverseselection and moral hazard features....

For the past 30 years, the conventional wisdom has been that executive compensation packages should include very large proportions of incentive pay. This incentive pay orthodoxy has become so firmly entrenched that the current debates about executive compensation simply take it as a given. We...

Using data that includes specific contractual details of Relative Performance Evaluation (RPE) contracts granted to executives for 1,833 firms for the period 1998 to 2012, we develop new methods to characterize RPE awards and measure their value and incentive properties. The frequency in the use...

We show in a theoretical model that credit default swaps induce managerial agency problems through two channels: reducing the opportunity for managers to transfer value to equityholders from creditors via strategic default, and reducing the intensity of monitoring by creditors, which leads to...

How does the mandated disclosure of executive compensation affect the dynamics of compensation within a peer group of firms? We argue in this paper that, under plausible conditions, it will trigger a ratchet effect in the mean level of executive pay within the peer group and is accompanied, hand...

We analyze the effects of optimism and overconfidence when the manager's compensation package includes severance pay and the CEO has bargaining power. We find that optimism does not affect incentive pay but increases severance pay with a negative effect on profit. Overconfidence, on the...

Recent regulation and legislation, along with the growing influence of compensation consultants and proxy advisors, have led to an increase in performance-contingent awards. A majority of these awards contain performance conditions tied explicitly to accounting measures. Both the structure of...