CEO reputation and stock-based compensation

Todd T. Milbourn

doi:10.1016/S0304-405X(03)00066-7

CEO reputation and stock-based compensation

Todd T. Milbourn

Research output: Contribution to journal › Article › peer-review

371 Scopus citations

Abstract

I develop a theory of stock-based compensation contracts for the chief executive officers (CEOs) of firms and confront the theoretical predictions with recent CEO compensation data. The model characterizes the optimal contract for a CEO whose reputation evolves as signals of the executive's ability are observed by shareholders. Using various proxies for CEO reputation, I show a positive and economically meaningful relationship between stock-based pay-sensitivities and CEO reputation. The findings are robust to controls for CEO age, firm size, the dollar variability of the stock returns, and industry effects.

Original language	English
Pages (from-to)	233-262
Number of pages	30
Journal	Journal of Financial Economics
Volume	68
Issue number	2
DOIs	https://doi.org/10.1016/S0304-405X(03)00066-7
State	Published - May 1 2003

Keywords

CEO compensation
Reputation
Stock-based pay

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10.1016/S0304-405X(03)00066-7

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abstract = "I develop a theory of stock-based compensation contracts for the chief executive officers (CEOs) of firms and confront the theoretical predictions with recent CEO compensation data. The model characterizes the optimal contract for a CEO whose reputation evolves as signals of the executive's ability are observed by shareholders. Using various proxies for CEO reputation, I show a positive and economically meaningful relationship between stock-based pay-sensitivities and CEO reputation. The findings are robust to controls for CEO age, firm size, the dollar variability of the stock returns, and industry effects.",

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AB - I develop a theory of stock-based compensation contracts for the chief executive officers (CEOs) of firms and confront the theoretical predictions with recent CEO compensation data. The model characterizes the optimal contract for a CEO whose reputation evolves as signals of the executive's ability are observed by shareholders. Using various proxies for CEO reputation, I show a positive and economically meaningful relationship between stock-based pay-sensitivities and CEO reputation. The findings are robust to controls for CEO age, firm size, the dollar variability of the stock returns, and industry effects.

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KW - Stock-based pay

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CEO reputation and stock-based compensation

Abstract

Keywords

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