On CEO Appointment and Compensation

41 Pages Posted: 22 Oct 2010

See all articles by Frederic Palomino

Frederic Palomino

EDHEC Business School

Eloic Peyrache

HEC Paris - Economics & Decision Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: May 2010

Abstract

CEO compensation has received a lot of attention in the recent past, above all the widening gap between its level and that of the compensation of other employees. However, this increase in CEO pay was accompanied by changes in the structure of CEO pay (i.e., the increased use of stock options) and changes in CEO appointment (boards of directors choosing CEOs outside the firm rather than inside). In this article, we propose a amended version of the standard principal-agent model that provides a rationale for the simultaneous increases in (i) CEO pay, (ii) use of stock options in compensation schemes and (iii) hiring of CEOs externally. Furthermore, we derive new testable implications regarding compensation packages proposed to internally promoted and externally chosen CEOs.

Suggested Citation

Palomino, Frederic and Peyrache, Eloic, On CEO Appointment and Compensation (May 2010). Paris December 2010 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=1695367 or http://dx.doi.org/10.2139/ssrn.1695367

Frederic Palomino (Contact Author)

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Eloic Peyrache

HEC Paris - Economics & Decision Sciences ( email )

Paris
France

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