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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27872
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| Title: | Is CEO Pay Really Inefficient? A Survey of New Optimal Contracting Theories |
| Authors: | Gabaix, Xavier
Edmans, Alex |
| Issue Date: | 6-Feb-2009 |
| Series/Report no.: | FIN-08-026 |
| Abstract: | Bebchuk and Fried (2004) argue that executive compensation is set by
CEOs themselves rather than boards on behalf of shareholders, since many
features of observed pay packages may appear inconsistent with standard
optimal contracting theories. However, it may be that simple models do
not capture several complexities of real-life settings. This article
surveys recent theories that extend traditional frameworks to
incorporate these dimensions, and show that the above features can be
fully consistent with efficiency. For example, optimal contracting
theories can explain the recent rapid increase in pay, the low level of
incentives and their negative scaling with firm size, pay-for-luck, the
widespread use of options (as opposed to stock), severance pay and debt
compensation, and the insensitivity of incentives to risk. |
| URI: | http://hdl.handle.net/2451/27872 |
| Appears in Collections: | Finance Working Papers
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