The optimal timing of executive compensation

Pierre Chaigneau

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We propose a new continuous-time principal-agent model to study the optimal timing of stock-based incentives, when the effects of managerial actions materialize with a lag and are only progressively understood by shareholders. On the one hand, early contingent compensation hedges the manager against the accumulation of exogenous shocks. On the other hand, the fact that initial information asymmetries between the manager and shareholders are progressively resolved suggests that contingent compensation should be postponed. We introduce two possible types of managerial short-termism, and show that they both result in lower-powered incentives and more deferred compensation.

JEL-codes: G34 J33 M52 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2010-08-13
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http://eprints.lse.ac.uk/119081/ Open access version. (application/pdf)

Related works:
Working Paper: The Optimal Timing of Executive Compensation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119081

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