 Executive Compensation: A Modern PrimerJournal of Economic Literature, 2016, vol. 54, issue 4, 1232-87 Abstract: This article studies traditional and modern theories of executive compensation, bringing them together under a simple unifying framework accessible to the general-interest reader. We analyze assignment models of the level of pay, and static and dynamic moral-hazard models of incentives, and compare their predictions to empirical findings. We make two broad points. First, traditional theories find it difficult to explain the data, suggesting that compensation results from "rent extraction" by CEOs. However, more modern "shareholder value" theories, that arguably better capture the CEO setting, do deliver predictions consistent with observed practices, suggesting that these practices need not be inefficient. Second, seemingly innocuous features of the modeling setup, often made for tractability or convenience, can lead to significant differences in the model's implications and conclusions on the efficiency of observed practices. We close by highlighting apparent inefficiencies in executive compensation and additional directions for future research. JEL-codes: G38 M12 M48 M52 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:aea:jeclit:v:54:y:2016:i:4:p:1232-87 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Economic Literature is currently edited by Steven Durlauf More articles in Journal of Economic Literature from American Economic Association Contact information at EDIRC. |
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