CEO Compensation, Change, and Corporate Strategy

Dow, James; Raposo, Clara C.

doi:10.1111/j.1540-6261.2005.00814.x

Cited by 113 publications

(51 citation statements)

References 41 publications

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“…As for severance pay, Walker (2005) points to a surge in (contractual) severance pay, while Lefanowicz, Robinson, and Smith (2000) find that both the usage and the magnitude of golden parachutes has increased during the 1980s and 90s. For alternative arguments for why CEO pay has increased over the past decades, see Almazan and Suarez (2003), Bebchuk and Fried (2004), Murphy and Zábojník (2004) or Dow and Raposo (2005). Proposition 8 follows immediately from our previous results together with the fact that value destruction due to CEO entrenchment is, for a given θ * < θ F B , proportional to firm While in Propositions 7 and 8 a higher turnover likelihood ensues because CEO entrenchment becomes more costly to the firm, the equilibrium level of CEO pay and turnover should also depend on the CEO's benefits from becoming entrenched in the first place.…”

Section: Comparative Statics Analysismentioning

confidence: 99%

CEO Replacement Under Private Information

2010

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We study a model of "information-based entrenchment" in which the CEO has private information that the board needs to make an efficient replacement decision. Eliciting the CEO's private information is costly, as it implies that the board must pay the CEO both higher severance pay and higher on-the-job pay. While higher CEO pay is associated with higher turnover in our model, there is too little turnover in equilibrium. Our model makes novel empirical predictions relating CEO turnover, severance pay, and on-the-job pay to firm-level attributes such as size, corporate governance, and the quality of the firm's accounting system. * We thank

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Section: Comparative Statics Analysismentioning

confidence: 99%

CEO Replacement Under Private Information

2010

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“…One set of studies suggest that the growth in pay results from either increasing demand for CEO talent from sources other than the increase in …rm size, or increasing demand for CEO e¤ort (from any source) -not only must the …rm directly compensate the CEO for exerting a higher e¤ort level, but also o¤er stronger incentives to induce this higher e¤ort level, thus requiring greater pay as a risk premium (see Section 3.2). For example, the productivity of managerial e¤ort and talent may have increased because of more intense competition due to deregulation or entry by foreign …rms (Hubbard and Palia, 1995;Guadalupe, 2009a, 2009b), improvements in the communication technologies used by managers (Garicano and Rossi-Hansberg, 2006), or a more volatile business environment (Dow and Raposo, 2005). An increase in …rm size can also raise the optimal level of CEO e¤ort if the marginal product of e¤ort increases with size (Himmelberg and Hubbard, 2000;Baker and Hall, 2004).…”

Section: Other Shareholder Value Explanationsmentioning

confidence: 99%

Executive Compensation: A Survey of Theory and Evidence

Edmans¹,

Gabaix²,

Jenter³

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives. We compare pay in U.S. public firms to private and non-U.S. firms. We then critically analyze three non-exclusive explanations for what drives executive pay -shareholder value maximization by boards, rent extraction by executives, and institutional factors such as regulation, taxation, and accounting policy. We confront each hypothesis with the evidence. While shareholder value maximization is consistent with many practices that initially seem inefficient, no single explanation can account for all facts and historical trends; we highlight major gaps for future research. We discuss evidence on the effects of executive pay, highlighting recent identification strategies, and suggest policy implications grounded in theoretical and empirical research. Our survey has two main goals. First, we aim to tightly link the theoretical literature to the empirical evidence, and combine the insights contributed by all three views on the drivers of pay. Second, we aim to provide a user-friendly guide to executive compensation, presenting shareholder value theories using a simple unifying model, and discussing the challenges and methodological issues with empirical research. JEL-Codes: D310, D860, G340, M120. Terms of use: Documents in

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“…Footnote 11). Some papers (e.g., Dow and Raposo, 2005) have attributed the rise in CEO pay to the greater incentives required due to increased uncertainty in recent times, but this argument has been challenged in a calibrated model by Gayle and Miller (2005). In a recent paper, Hermalin (2005) argues that tighter corporate governance increases CEO pay because there is less job security, but again, the issues surrounding concealment of compensation are not addressed by this argument.…”

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confidence: 95%

Executive compensation and investor clientele

Li¹,

Subrahmanyam²

2009

COC

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We provide a setting where due to a lack of sophistication, possibly arising from high opportunity costs of learning about accounting conventions and financial markets, nave (unsophisticated) investors are unable to decipher true executive compensation accurately. Expected compensation is therefore higher when such investors form a more significant clientele in the market for a firm’s stock. Our model further suggests that increased information asymmetry between informed and uninformed traders may deter the entry of uninformed investors and keep executive compensation in check. Technologies that lower the cost of trading facilitate entry of relatively unsophisticated investors and raise expected compensation. In general, such compensation can be reduced through requirements that increase disclosure transparency. Empirical tests provide support to the key implication of the model that indirect executive compensation is higher in stocks with higher liquidity, which are likely to have greater unsophisticated investor participation.

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CEO Compensation, Change, and Corporate Strategy

Cited by 113 publications

References 41 publications

CEO Replacement Under Private Information

CEO Replacement Under Private Information

Executive Compensation: A Survey of Theory and Evidence

Executive compensation and investor clientele

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