Restricting CEO Pay

Ingolf Dittmann, EG Maug, D (Dan) Zhang

Research output: Contribution to journalArticleAcademicpeer-review

38 Citations (Scopus)

Abstract

We analyze several proposals to restrict CEO compensation and calibrate two models of executive compensation that describe how firms would react to different types of restrictions. We find that many restrictions would have unintended consequences. Restrictions on total realized (ex-post) payouts lead to higher average compensation, higher rewards for mediocre performance, lower risk-taking incentives, and the fact that some CEOs would be better off with a restriction than without it. Restrictions on total ex-ante pay lead to a reduction in the firm's demand for CEO talent and effort. Restrictions on particular pay components, and especially on cash payouts, can be easily circumvented. While restrictions on option pay lead to lower risk-taking incentives, restrictions on incentive pay (stock and options) result in higher risk-taking incentives.
Original languageEnglish
Pages (from-to)1200-1220
Number of pages21
JournalJournal of Corporate Finance
Volume17
Issue number4
DOIs
Publication statusPublished - 2011

Fingerprint

Dive into the research topics of 'Restricting CEO Pay'. Together they form a unique fingerprint.

Cite this