Managerial expertise, private information, and pay-performance sensitivity

• 成果类型: Article
• 署名作者: Dutta, Sunil
• 署名单位: University of California System; University of California Berkeley
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1070.0785
• 发表日期: 2008
• 页码: 429-442
• 关键词: incentive contracts; managerial expertise; private information; PAY-PERFORMANCE SENSITIVITY

摘要

This paper characterizes optimal pay-performance sensitivities of compensation contracts for managers who have private information about their skills, and those skills affect their outside employment opportunities. The model presumes that the rate at which a manager's opportunity wage increases in his expertise depends on the nature of that expertise, i.e., whether it is general or-firm specific. The analysis demonstrates that when managerial expertise is largely firm specific (general), the optimal pay-performance sensitivity is lower (higher) than its optimal value in a benchmark setting of symmetric information. Furthermore, when managerial skills are largely firm specific (general), the optimal pay-performance sensitivity decreases (increases) as managerial skills become a more important determinant of firm performance. Unlike the standard agency-theoretic prediction of a negative trade-off between risk and pay-performance sensitivity, this paper identifies plausible circumstances under which risk and incentives are positively associated. In addition to providing an explanation for why: empirical tests of risk-incentive relationships hive produced mixed results, the analysis generates insights that can be useful in guiding future empirical research.