Sticks or Carrots? Optimal CEO Compensation when Managers Are Loss Averse

• 成果类型: Article
• 署名作者: Dittmann, Ingolf; Maug, Ernst; Spalt, Oliver
• 署名单位: Erasmus University Rotterdam; Erasmus University Rotterdam - Excl Erasmus MC; University of Mannheim; Tilburg University
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/j.1540-6261.2010.01609.x
• 发表日期: 2010
• 页码: 2015-2050
• 关键词: PROSPECT-THEORY; risk-aversion; Behavioral biases; performance; options; pay; incentives; DECISION; prices; CHOICE

摘要

This paper analyzes optimal executive compensation contracts when managers are loss averse. We calibrate a stylized principal-agent model to the observed contracts of 595 CEOs and show that this model can explain observed option holdings and high base salaries remarkably well for a range of parameterizations. We also derive and calibrate the general shape of the optimal contract that is increasing and convex for medium and high outcomes and that drops discontinuously to the lowest possible payout for low outcomes. Finally, we identify the critical features of the loss-aversion model that render optimal contracts convex.