On 27 February 2013, the European Union (EU) reached a provisional deal to limit the amount of bankers' bonuses to the amount of fixed remuneration (i.e., a one-to-one ratio); the cap could be increased to 2:1 with the backing of a supermajority of shareholders. I demonstrate that the pending EU...

This paper explores the legislative history of executive compensation, starting with Depression-era disclosure regulations and ending with the ongoing implementation of the Dodd-Frank Act. Over the past 80 years, Congress has imposed tax policies, accounting rules, disclosure requirements,...

Although exercise prices for executive stock options can be set either below or above the grant-date market price, in practice virtually all options are granted at the money. We offer an economic rationale for this apparent puzzle, by showing that pay-to-performance incentives for risk-averse...

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...

In about one-third of US IPOs between 1996 and 2000, executives received stock options with an exercise price set equal to the IPO offer price (rather than a price determined by the market). Among firms with such quot;IPO optionsquot;, 58 percent of top executives receive a net gain from...

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...

Paying top executives better would eventually mean paying them more. The arrival of spring means yet another round in the national debate over executive compensation. Soon the business press will trumpet answers to the questions it asks every year: Who were the highest paid CEOs? How many...