Internal vs. External CEO Choice and the Structure of Compensation Contracts

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2012-08-01

Summary:

Editor’s Note: The following post comes to us from Frédéric Palomino of the Department of Economics at EDHEC Business School and Eloïc-Anil Peyrache of the Department of Economics and Decision Sciences at HEC Paris.

The dramatic and unprecedented increase in CEO pay in the 1980s and 1990s led to questioning the efficiency of CEO compensation packages. The debate concentrated first on the pay-performance sensitivity and then moved to the compensation level, given the observed widening gap between the pay level of executive officers and other employees. However, another important change regarding CEOs took place over the same period—their working experience prior to being appointed as a CEO. Increasingly, boards of directors have hired CEOs outside their firm.

In our paper, Internal vs. External CEO Choice and the Structure of Compensation Contracts, forthcoming in the Journal of Financial and Quantitative Analysis, we provide a rationale for the simultaneous increases in (i) CEO pay, (ii) use of equity in compensation schemes, and (iii) hiring of CEOs externally.

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Link:

http://blogs.law.harvard.edu/corpgov/2012/08/01/internal-vs-external-ceo-choice-and-the-structure-of-compensation-contracts/

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Blogs.law Aggregation Hub » The Harvard Law School Forum on Corporate Governance and Financial Regulation

Tags:

academic research empirical research executive turnover executive compensation internal control equity-based compensation eloïc-anil peyrache frédéric palomino

Authors:

R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation,

Date tagged:

08/01/2012, 14:22

Date published:

08/01/2012, 09:19