The optimal timing of CEO compensation

Pierre Chaigneau

Finance Research Letters, 2018, vol. 24, issue C, 90-94

Abstract: We extend a standard principal-agent model of CEO compensation by modeling the progressive attenuation of information asymmetries about firm value by shareholders in continuous time. The dynamics of the stock price process are affected by the continuous accumulation of exogenous shocks, and by the progressive resolution of information asymmetries. The optimal timing of compensation is the point in time at which the stock price is most informative about the manager’s action. When exogenous shocks accumulate at a constant rate over time and information asymmetries are resolved at a decreasing rate, the optimal timing of compensation is the point in time at which these two rates coincide.

Keywords: Deferred compensation; Executive compensation; Principal-agent model (search for similar items in EconPapers)
JEL-codes: G34 J33 M52 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: The Optimal Timing of CEO Compensation (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:24:y:2018:i:c:p:90-94

DOI: 10.1016/j.frl.2017.07.008

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