|
Archive@NYU >
Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26415
|
| Title: | Incentives for CEOs to Exit |
| Authors: | Inderst, Roman
Mueller, Holger M. |
| Issue Date: | Jan-2005 |
| Series/Report no.: | FIN-05-014 |
| Abstract: | An important question for firms in dynamic industries is how to induce a
CEO to reveal information that the firm should change its strategy, in
particular when a strategy change might cause his own dismissal. We show
that the uniquely optimal incentive scheme from this perspective
consists of options, a base wage, and severance pay. Option compensation
minimizes the CEO’s expected on-the-job pay from continuing with a
poor strategy. Hence, a smaller severance payment is needed to induce
the CEO to reveal information causing a strategy change than, e.g.,
under stock compensation or other forms of variable pay. The model
suggests how deregulation and massive technological changes in the 1980s
and 1990s may have contributed to the dramatic rise in CEO pay and
turnover over the same period. |
| URI: | http://hdl.handle.net/2451/26415 |
| Appears in Collections: | Finance Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
