Economics at your fingertips  

CEO contract design: How do strong principals do it?

Henrik Cronqvist and Ruediger Fahlenbrach

Journal of Financial Economics, 2013, vol. 108, issue 3, 659-674

Abstract: We study changes in chief executive officer (CEO) contracts when firms transition from public ownership with dispersed owners to private ownership with strong principals in the form of private equity sponsors. The most significant changes are that a significant portion of equity grants performance-vests based on prespecified measures and that unvested equity is forfeited by fired CEOs. Private equity sponsors do not reduce base salaries, bonuses, and perks, but redesign contracts away from qualitative measures. They use some subjective performance evaluation, do not use indexed or premium options, and do not condition vesting on relative industry performance. We compare the contracts to predictions from contracting theories, and relate our results to discussions of executive compensation reform.

Keywords: LBOs; Employment contracts; Contracting theory; Executive compensation (search for similar items in EconPapers)
JEL-codes: G32 G34 J33 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: CEO Contract Design: How Do Strong Principals Do It? (2011) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.jfineco.2013.01.013

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-07-20
Handle: RePEc:eee:jfinec:v:108:y:2013:i:3:p:659-674