Liquidity and Manipulation of Executive Compensation Schemes

@inproceedings{Axelson2008LiquidityAM,
  title={Liquidity and Manipulation of Executive Compensation Schemes},
  author={Ulf Axelson and Sandeep Baliga},
  year={2008}
}
Compensation contracts have been criticized for encouraging managers to manipulate information. This includes bonus schemes that encourage earnings smoothing, and option packages that allow managers to cash out early when the firm is overvalued. We show that the intransparency induced by these contract features is critical for giving long-term incentives. Lack of transparency makes it harder for the owner to engage in ex post optimal but ex ante inefficient liquidity provision to the manager… CONTINUE READING