NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Agency, Delayed Compensation, and the Structure of Executive Remuneration

Jonathan Eaton, Harvey S. Rosen

NBER Working Paper No. 777 (Also Reprint No. r0451)
Issued in October 1981
NBER Program(s):   PE   LS

In this paper we examine the factors affecting the structure of executives' compensation packages. We focus particularly on the role of various types of delayed compensation as means of "bonding" executives to their firms. The basic problem is to design a compensation package that rewards actions that are in the long-run interest of the stockholders. Firms must take into account (1) their ability to discern unfortunate circumstances from mismanagement; (2) the extent to which a compensation package forces the executive to face risks, beyond his control; and (3) the willingness of a given executive to bear this risk. We use our theory to interpret some executive compensation data from the early 1970's. The results are generally in line with the theoretical predictions.

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Document Object Identifier (DOI): 10.3386/w0777

Published: Eaton, Jonathan and Harvey S. Rosen. "Agency, Delayed Compensaton, and the Structure of Executive Remuneration." Journal of Finance, Vol. 38, No. 5, ( December 1983), pp. 1489-1505. citation courtesy of

 
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