Do CEOs Set Their Own Pay? The Ones Without Principals Do

Bertrand, Marianne; Mullainathan, Sendhil

doi:10.3386/w7604

Cited by 32 publications

(16 citation statements)

References 27 publications

(18 reference statements)

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“…32 Aggarwal and Samwick (1999) develop a model where strategic interactions among firms can explain the lack of relative performance-based incentives. Bertrand and Mullainathan (2000) argue that boards may want their CEOs to respond to aggregate shocks for two reasons. First, in the context of the oil industry, the board may want the CEO to "keep his eyes open" for an oil shock.…”

Section: Discussion and Interpretationmentioning

confidence: 99%

“…Resolving the tension between the manager's incentives to misreport or liquidate his firm and his desire to share risk results in a constrained-optimal capital structure. 9 At the macroeconomic level, the fraction of wealth held by managers varies over the business cycle and is the driving force in the model. Consider a two period economy where households can only save by investing with managers that face lax leverage constraints.…”

mentioning

confidence: 99%

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Why does capital structure choice vary with macroeconomic conditions?

Levy¹,

Hennessy

2007

Journal of Monetary Economics

130

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Section: Discussion and Interpretationmentioning

confidence: 99%

mentioning

confidence: 99%

Why does capital structure choice vary with macroeconomic conditions?

Levy¹,

Hennessy

2007

Journal of Monetary Economics

130

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“…4 Executive stock options have been recommended for incentive compensation 3 Corporate executives are generally not permitted to sell their stock and option grants for a specified period of time, the "vesting period", and are also contractually precluded from hedging the risk by short-selling company stock. 4 The approach taken in this paper is normative, without taking a stance on whether corporate boards or compensation commitees try to design optimal compensation contracts. See Core and Guay (1999) for evidence that firms use annual stock and option grants to achieve desired levels of incentives for their executives.…”

Section: Introductionmentioning

confidence: 99%

Executive Compensation, Incentives, and Risk

Jenter

2004

SSRN Journal

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Executive Compensation, Incentives, and Risk 1 This paper analyzes the link between equity-based compensation and created incentives by (1) deriving a measure of incentives suitable for both linear and non-linear compensation contracts, (2) analyzing the effect of risk on incentives, and (3) clarifying the role of the agent's private trading decisions in incentive creation. With option-based compensation contracts, the average pay-forperformance sensitivity is not an adequate measure of ex-ante incentives. Pay-for-performance covaries negatively with marginal utility and hence overstates the created incentives. Second, more noise in the performance measure implies that the manager is less certain about the effect of effort on performance, which in turn makes her less willing to exert effort. Finally, the private trading decisions by the manager have first-order effects on incentives. By reducing her holdings of the market asset, the manager achieves an effect similar to "indexing" the stock or option grant, making explicit indexation of the contract redundant.

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“…Compensation schemes that could contribute to reducing agency costs are viewed as indirect governance mechanisms. There is some evidence that suggests that these indirect internal mechanisms are also stronger when there exists an active shareholder—for an example, see Bertrand and Mullainathan (2001).…”

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confidence: 99%

Governance Mechanisms and Equity Prices

Cremers

Nair

2005

The Journal of Finance

1,011

692

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We investigate how the market for corporate control (external governance) and shareholder activism (internal governance) interact. A portfolio that buys firms with the highest level of takeover vulnerability and shorts firms with the lowest level of takeover vulnerability generates an annualized abnormal return of 10% to 15% only when public pension fund (blockholder) ownership is high as well. A similar portfolio created to capture the importance of internal governance generates annualized abnormal returns of 8%, though only in the presence of "high" vulnerability to takeovers. The complementarity effect exists for firms with lower industry-adjusted leverage and is stronger for smaller firms. Copyright 2005 by The American Finance Association.

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Do CEOs Set Their Own Pay? The Ones Without Principals Do

Cited by 32 publications

References 27 publications

Why does capital structure choice vary with macroeconomic conditions?

Why does capital structure choice vary with macroeconomic conditions?

Executive Compensation, Incentives, and Risk

Governance Mechanisms and Equity Prices

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