We analyze the efficiency of indexing executive pay by calibrating the standard model of executive compensation to a large sample of US CEOs. The benefits from linking the strike price of stock options to an index are small and fully indexing all options would increase compensation costs by about 50% for most firms.
Indexing has several effects with overall ambiguous impact; the quantitatively most important effect is to reduce incentives, because indexed options pay off when CEOs’ marginal utility is low. The results also hold if CEOs can extract rents and extend to the case of indexing shares.
This study examines whether the CEO uses share repurchases to sell her equity grants at inflated stock prices, a concern regularly voiced in politics and...
We develop a model in which there are firms and employees who care about profit-sacrificing higher purpose (HP) and those who do not. Firms and employees...
Public attention to a firm may provide valuable monitoring, but it may also have a dark side by constraining management’s decisions and distracting...