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| Author: | Ruiz-Verdu, P. |
| Title: | Corporate governance when managers set their own pay |
| Journal: | European Financial Management
2008 : NOV, VOL. 14:5, p. 921-943 |
| Index terms: | corporate governance executive remuneration pay stakeholders models |
| Language: | eng |
| Abstract: | In this paper, a model of the firm is presented in which the manager has discretion over his own compensation, constrained only by the threat of shareholder (henceforth as s-h.) intervention. Two main questions are addressed: 1. How does s-h. power (here as: s-h-p.) affect managers' compensation and their incentives to maximise firm value?, 2. What is the optimal level of s-h-p.? It is shown that increasing s-h-p. leads to lower managerial pay. However, greater s-h-p. also weakens the manager's incentives to maximise value, possibly even leading to lower profits for shareholders etc. |
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