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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/25995
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| Title: | CEO Compensation and Private Information: An Optimal Contracting Perspective |
| Authors: | Inderst, Roman
Mueller, Holger M |
| Issue Date: | Dec-2006 |
| Series/Report no.: | CLB-06-022 |
| Abstract: | We consider the joint optimal design of CEOs’ severance pay and
on-the-job pay in a model in which the CEO has interim private
information about the likely success of his strategy. The board faces a
tradeoff between reducing the likelihood that the firm forgoes an
efficient strategy change and limiting the CEO’s informational
rents. The optimal truthtelling mech-anism takes a simple form: it
consists of fixed severance pay and high-powered, non-linear on-the-job
pay, such as a bonus scheme or option grant. Our model makes testable
predic-tions linking CEOs’ severance pay and on-the-job pay to
each other as well as to the firm’s external business environment,
firm size, and corporate governance. |
| URI: | http://hdl.handle.net/2451/25995 |
| Appears in Collections: | NYU Pollack Center for Law & Business Working Papers
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