Stock option grants to top managers have largely contributed to the dramatic increase in US executive pay in recent years. In this paper it is argued that stock options, compared to other forms of compensation, have created strong incentives for managers to engage in lobbyingactivities for...

This paper studies how CEO pay and its composition is shaped by strategic factors related to the firm's capacity to generate rents and value, the uncertainty of its resource advantage, and the competitive interaction between firm stakeholders and top management. This is done using an analytical...

Equity-based compensation, while inducing greater managerial effort, also provides incentives for managers to fraudulently inflate a firm's stock price. This paper examines the owners' optimal contract in the face of these conflicting incentives when it is sometimes possible for the manager to...

Employee stock options differ substantially from traded options. Most expire within 90 days of the termination of employment, and are forfeited if the employee leaves before vesting. The major accounting standards boards are in agreement that options should be expensed, but companies have...

Using a dynamic model with uncertainty and asymmetric information, we study the impact of debt and bankruptcy on managerial compensation and learning. In this model, compensation has two roles to play - providing incentives to the manager and learning about his type. We show that debt, through...

Stock option grants to top managers have largely contributed to the dramatic increase in US executive pay in recent years. In this paper it is argued that stock options, compared to other forms of compensation, have created strong incentives for managers to engage in lobbying activities for...

This paper examines the role of equity-based incentives in fostering cross-business-unit collaboration in multibusiness firms. We develop a formal agency model in which headquarters offers equity and profit incentives to business-unit managers with the objective of maximizing total expected firm...

This paper demonstrates how the outside ownership of assets used in production can improve outcomes. If outside ownership improves outcomes, and assets which implement the gains from outside ownership are scarce, then assets can have value conditional on outside ownership. A framework with a...

This paper examines the extent to which agency theory may explain CEO compensation in state-owned enterprises (SOEs) in China during the 1980s. We find that the sensitivity of CEO pay to firm performance decreases with the variance of performance. This is consistent with the prediction of a...

We empirically examine two competing views of CEO pay. In the contracting view, pay is used to solve an agency problem: the compensation committee optimally chooses pay contracts that give the CEO incentives to maximize shareholder wealth. In the skimming view, pay is the result of an agency...