Options in Compensation: Promises and Pitfalls

• 成果类型: Article
• 署名作者: Flor, Christian Riis; Frimor, Hans; Munk, Claus
• 署名单位: University of Southern Denmark; Aarhus University; Copenhagen Business School
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12049
• 发表日期: 2014
• 页码: 703-732
• 关键词: STOCK-OPTIONS; moral hazard; Portfolio management; ceo compensation; RISK; performance; incentives; INFORMATION; liquidity; cost

摘要

We derive the optimal compensation contract in a principal-agent setting in which outcome is used to provide incentives for both effort and risky investments. To motivate investment, optimal compensation entails rewards for high as well as low outcomes, and it is increasing at the mean outcome to motivate effort. If rewarding low outcomes is infeasible, compensation consisting of stocks and options is a near-efficient means of overcoming the manager's induced aversion to undertaking risky investments, whereas stock compensation is not. However, stock plus option compensation may induce excessively risky investments, and capping pay can be important in curbing such behavior.