The effect of monitoring on CEO pay practices in a matching equilibrium

Pierre Chaigneau and Nicolas Sahuguet

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

Abstract: We present a model of efficient contracting with endogenous matching and limited monitoring in which firms compete for CEOs. The model explains the association between limited monitoring and CEO pay practices such as pay-for-luck, high salaries, a low pay-performance sensitivity, and a more asymmetric pay-for-performance relation. The results are driven by the matching equilibrium: firms with different capacities for monitoring hire different types of CEOs and offer different compensation contracts. The model thus responds to some fundamental arguments of the managerial power perspective.

Keywords: CEO pay; corporate governance; monitoring; ownership structure; pay-for-luck. (search for similar items in EconPapers)
JEL-codes: D86 G34 M12 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2013-11-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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