A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium
Publication information:
Edmans, Gabaix, Landier. A Multiplicative Model of Optimal CEO Incentives in Market Equilibrium. Review of Financial Studies. 2009;22:4881–4917.
Abstract
A neoclassical model of both total salary and incentives quantitatively explains various apparently paradoxical features of the data, such as the negative empirical scaling of the Jensen-Murphy incentives with firm size and their seemingly low level.