IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v90y2000i2p203-208.html
   My bibliography  Save this article

Agents with and without Principals

Author

Listed:
  • Sendhil Mullainathan
  • Marianne Bertrand

Abstract

Who sets CEO pay? Our standard answer to this question has been shaped by principal agent theory: shareholders set CEO pay. They use pay to limit the moral hazard problem caused by the low ownership stakes of CEOs. Through bonuses, options, or long term contracts, shareholders can motivate the CEO to maximize firm wealth. In other words, shareholders use pay to provide incentives, a view we refer to as the contracting view. An alternative view, championed by practitioners such as Crystal (1991), argues that CEOs set their own pay. They manipulate the compensation committee and hence the pay process itself to pay themselves what they can. The only constraints they face may be the availability of funds or more general fears, such as not wanting to be singled out in the Wall Street Journal as being overpaid. We refer to this second view as the skimming view. In this paper, we investigate the relevance of these two views.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Sendhil Mullainathan & Marianne Bertrand, 2000. "Agents with and without Principals," American Economic Review, American Economic Association, vol. 90(2), pages 203-208, May.
    • Handle: RePEc:aea:aecrev:v:90:y:2000:i:2:p:203-208
    Note: DOI: 10.1257/aer.90.2.203
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.90.2.203
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "The Other Side of the Trade-off: The Impact of Risk on Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 65-105, February.
    2. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    3. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Page, T. Beau, 2018. "CEO attributes, compensation, and firm value: Evidence from a structural estimation," Journal of Financial Economics, Elsevier, vol. 128(2), pages 378-401.
    2. Richard M. Cyert & Sok-Hyon Kang & Praveen Kumar, 2002. "Corporate Governance, Takeovers, and Top-Management Compensation: Theory and Evidence," Management Science, INFORMS, vol. 48(4), pages 453-469, April.
    3. Ke, Bin & Petroni, Kathy & Safieddine, Assem, 1999. "Ownership concentration and sensitivity of executive pay to accounting performance measures: Evidence from publicly and privately-held insurance companies," Journal of Accounting and Economics, Elsevier, vol. 28(2), pages 185-209, December.
    4. Marianne Bertrand & Sendhil Mullainathan, 2000. "Do CEOs Set Their Own Pay? The Ones Without Principals Do," NBER Working Papers 7604, National Bureau of Economic Research, Inc.
    5. Calcagno, R. & Renneboog, L.D.R., 2004. "Capital Structure and Managerial Compensation : The Effects of Renumeration Seniority," Discussion Paper 2004-120, Tilburg University, Center for Economic Research.
    6. Kuang, Yu Flora & Qin, Bo, 2009. "Performance-vested stock options and interest alignment," The British Accounting Review, Elsevier, vol. 41(1), pages 46-61.
    7. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    8. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    9. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, April.
    10. Sautner, Zacharias & Weber, Martin, 2005. "Corporate governance and the design of stock option programs," Papers 05-32, Sonderforschungsbreich 504.
    11. Canice Prendergast, 2000. "The Tenuous Tradeoff Between Risk and Incentives," NBER Working Papers 7815, National Bureau of Economic Research, Inc.
    12. Chen, Jie & Song, Wei & Goergen, Marc, 2019. "Passing the dividend baton: The impact of dividend policy on new CEOs' initial compensation," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 458-481.
    13. Bouwens, J.F.M.G. & van Lent, L.A.G.M., 2003. "Effort and Selection Effects of Incentive Contracts," Discussion Paper 2003-130, Tilburg University, Center for Economic Research.
    14. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    15. Matyukha, Andriy, 2017. "Business groups in agriculture impact of ownership structures on performance: The case of Russia's agroholdings," Studies on the Agricultural and Food Sector in Transition Economies 254051, Institute of Agricultural Development in Transition Economies (IAMO).
    16. Yoon K. Choi, 2020. "Does executive compensation reflect corporate productivity?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(7-8), pages 1012-1033, July.
    17. Bushman, Robert M. & Smith, Abbie J., 2001. "Financial accounting information and corporate governance," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 237-333, December.
    18. Jenter, Dirk, 2004. "Executive Compensation, Incentives, and Risk," Working papers 4466-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    19. Hingorani, Archana & Lehn, Kenneth & Makhija, Anil K., 1997. "Investor behavior in mass privatization: The case of the Czech voucher scheme," Journal of Financial Economics, Elsevier, vol. 44(3), pages 349-396, June.
    20. Chen, Shenglan & Lin, Bingxuan & Lu, Rui & Zhang, Ting, 2015. "Controlling shareholders’ incentives and executive pay-for-performance sensitivity: Evidence from the split share structure reform in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 147-160.

    More about this item

    JEL classification:

    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:90:y:2000:i:2:p:203-208. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.