@techreport{NBERw5779,
 title = "Executive Compensation and the Optimality of Managerial Entrenchment",
 author = "Gary Gorton and Bruce D. Grundy",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "5779",
 year = "1996",
 month = "September",
 URL = "http://www.nber.org/papers/w5779",
 abstract = {Firms are more complicated than standard principal-agent theory allows: firms have assets-in-place; firms endure through time, allowing for the possibility of replacing a shirking manager; firms have many managers, constraining the amount of equity that can be awarded to any one manager; and, a firm's owner can transfer some control to a manager, thereby entrenching her. Recognizing these characteristics, we solve for the vesting dates; wage, equity and options components; and control rights of an optimal contract.  Managerial entrenchment makes the promise of deferred compensation credible.  Deferring compensation by delaying vesting reduces a manager's ability to free-ride on a replacement's effort.},
}