Lower salaries and no options : the optimal structure of executive pay


Maug, Ernst ; Dittmann, Ingolf


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URL: http://ub-madoc.bib.uni-mannheim.de/2527
URN: urn:nbn:de:bsz:180-madoc-25278
Document Type: Working paper
Year of publication: 2007
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Classification: JEL: M52 G30 ,
Subject headings (SWD): USA , Vergütung , Führungskraft , Anreizsystem , Schätzung , Aktienoptionsplan
Keywords (English): Executive compensation , stock options
Abstract: We estimate a standard principal agent model with constant relative risk aversion and lognormal stock prices for a sample of 598 US CEOs. The model is widely used in the compensation literature, but it predicts that almost all of the CEOs in our sample should hold no stock options. Instead, CEOs should have lower base salaries and receive additional shares in their companies. For a typical value of relative risk aversion, almost half of the CEOs in our sample would be required to purchase additional stock in their companies from their private savings. The model predicts contracts that would reduce average compensation costs by 20% while providing the same incentives and the same utility to CEOs. We investigate a number of extensions and modi.cations of the standard model, but .nd none of them to be satisfactory. We conclude that the standard principal agent model typically used in the literature cannot rationalize observed contracts. One reason may be that executive pay contracts are suboptimal.
Translation of the title: Lower salaries and no options? On the optimal structure of executive pay (English)
Additional information: Available at SSRN: http://ssrn.com/abstract

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




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Maug, Ernst ; Dittmann, Ingolf (2007) Lower salaries and no options : the optimal structure of executive pay. Open Access [Working paper]
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