This paper examines variations in executive compensation as a function of CEO power. We assume that a CEO’s motivation to optimize his pay is conditional upon his ability to shape decisions that favor his interests. Power is inferred form overt manifestations such as share holdings, but also from covert sources such as a CEO’s social capital. Two components of compensation are considered: base ...

CEOs and their management teams decide how much a firm will spend on IT. Though managers make IT spending decisions with the intent of generating value, such benefits are risky and not guaranteed (Dewan et al. 2007). While CEOs may perceive that IT spending could translate into competitive advantage and increase productivity, they also realize that IT expense will reduce current net income and ...

An underlying assumption in the executive compensation literature is that there is a national labor market for CEOs. The urban economics literature, however, documents higher ability among workers in large metropolitans, which results in a real and stable urban wage premium. In this paper, we investigate the link between the spatial clustering of firms in big, central cities (i.e., urban agglom...

Using instrumental variables approach, this paper investigates whether an increase in stockbased compensation for CEOs is associated with a reduction in the dollar value of all other CEO compensation, as agency theory would suggest. I find that, on the contrary, larger stock-based compensation is on average accompanied by larger other components of CEO compensation. Similar results are obtained...

We examine how relative performance evaluation (RPE) is incorporated in CEO compensation contracts. We find common features across contracts. First, firms tend to base the awards on the ranking of the CEO relative to peers. Second, the relation between performance and awards is highly nonlinear. And third, the award is based on a performance horizon of around three years. Once these features ar...

This paper examines the determinants of stock option introduction as a part of CEO compensation in listed US firms during the 1994-2004 period. The results are consistent with agency costs and recruiting considerations, suggesting that firms do not adjust CEO compensation in order to address the ‘investment horizon’ problem. The findings also suggest that CEO stock option adoption is not necess...

We examine the influence of CEO equity-based compensation on strategic risk taking by the firm. Building off the Behavioral Agency Model, Agency Theory, and Prospect Theory, we develop arguments about when equity-based compensation elements will increase or decrease executive risk propensity and, in turn, strategic risk taking. Incorporating a behavioral perspective into our models of incentive...

We analyze the effect of committee formation on how corporate boards perform two main functions: setting CEO pay and overseeing the financial reporting process. The use of performance-based pay schemes induces the CEO to manipulate earnings, which leads to an increased need for board oversight. If the whole board is responsible for both functions, it is inclined to provide the CEO with a compen...

The Cerasi and Oliviero contribution in this issue explores an important question from the banking regulation perspective: how does bank CEO compensation affect risk taking? It first lays out a model that illustrates how using variable compensation for bank CEOs (an exogenous free parameter in the model) may have an ambiguous effect on the CEO’s risk-taking behavior. The key feature of the mode...