How Should Performance Signals Affect Contracts?

• 成果类型: Article
• 署名作者: Chaigneau, Pierre; Edmans, Alex; Gottlieb, Daniel
• 署名单位: Queens University - Canada; University of London; London Business School; Centre for Economic Policy Research - UK; European Corporate Governance Institute; University of London; London School Economics & Political Science
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhab026
• 发表日期: 2022
• 页码: 168
• 关键词: Moral hazard; 1st-order approach; executive-compensation; limited-liability; trade-off; STOCK; INFORMATION; options; pay; incentives

摘要

The informativeness principle states that a contract should depend on informative signals. This paper studies how it should do so. Signals indicating that the output distribution has shifted to the left (e.g., weak industry performance) reduce the threshold for the manager to be paid; those indicating that output is a precise measure of effort (e.g., low volatility) decrease high thresholds and increase low thresholds. Surprisingly, good signals of performance need not reduce the threshold. Applying our model to performance-based vesting, we show that performance measures should affect the strike price, rather than the number of vesting options, contrary to practice.