Journal of Labor Economics Vol. 24 No. 1 2006
Optimal CEO Compensation: Some Equivalence Results
open access
Abstract
I study optimal managerial contracts in two contracting environments. When the investment return is contractible, an optimal contract combines a base salary, golden parachute, and bonus. When the return is not contractible, two types of optimal contracts are studied: a contract with restricted stock and a contract with stock options. These three types of contracts are equivalent: they implement the same outcome and lead to the same expected payoff for the manager, implying that the choice of contractual form is irrelevant in the environment I study. I suggest directions of research for the relevance of different contractual forms.
- DOI
- 10.1086/497822
- Volume
- 24
- Issue
- 1
- Pages
- 171-201
- Language
- en
- Sources
- openalex crossref