Holding CEOs Accountable: Improving Compensation Structure

Abstract

This paper presents three different hypotheses that attempt to explain the CEO compensation structure and the optimal contract, managerial power, and tournament system hypotheses. Using knowledge gained from these three hypotheses, a brief analysis of the reasons the government needs to be involved in regulating the CEO compensation structure follows. The paper ends with a proposal to regulate the compensation structure and addresses various potential objections to government regulation.

Keywords

• Executive compensation
• optimal contracting
• managerial power
• tournament system