We examine the relation between public pension plan chief investment officer (CIO) compensation and plans’ performance. Higher paid CIOs outperform their counterparts by 47–60 basis points per year, largely through increased superior in private equity real estate. This outperformance generates an additional $74.91–$95.63 million economic value. Plans offering higher hire better educated are mor...

What kinds of policies can governments adopt to attract, retain, motivate and develop qualified teachers in elementary and secondary schools? The project will pursue two avenues to address this question. The first component will study the effect of recent reforms on the teaching profession in four countries. Some of these reforms involve increases in compensation linked to specific teacher beha...

We consider optimal capital allocation and managerial compensation mechanisms for decentralized ̄rms when division managers have an incentive to misrepresent project quality and to minimize privately costly but value-enhancing e®ort. We show that in the optimal mechanism ̄rms always underinvest in capital relative to a naive application of the net present value (NPV) rule. We make a number of n...

BY MICHAEL SPAFFORD, NEIL TORPEY, AMY CARPENTER-HOLMES AND JOANNE JOSEPH R ecent investigations and scandals have directed attention to the behavior of individual corporate executives. The common reaction to misconduct is to look to the people at the top; like it or not, corporate management is expected to accept responsibility and make appropriate amends if something goes wrong. Making amends ...

The standard contract theory adopts the traditional hypothesis of pure self-interest. However, a series of game experiments have proven that people are not any self-interest but also inequity averse. Then, how will the inequity aversion influence the optimal contract for multiple agents? This paper attempts to obtain new theoretical insights by incorporating inequity aversion into the standard ...

We examine the relationship between the optimal incentive contract and the firm’s decision to fire a manager for poor performance. We first derive some theoretical results using a simple principal-agent model, and then examine the empirical evidence on the incidence of forced turnover among CEOs with different compensation contracts. We find that CEOs with steeper compensation contracts (i.e., ...

Performance-based pay is an important instrument to align the interests of managers with the interests of shareholders. However, recent evidence suggests that high-powered incentives also provide managers with incentives to manipulate the firm's reported earnings. The previous literature has focused primarily on Chief Executive Officers, but managers further down in the firm hierarchy—division ...

A so-called "incentive contract" is a linear payment schedule, where the buyer pays a fixed fee plus some proportion of audited project cost. That remaining proportion of project cost borne by the seller is called the "sharing ratio." A higher sharing ratio creates more incentive to reduce costs. But it also makes the agent bear more cost uncertainty, requiring as compensation a greater fixed f...

I explicitly derive the optimal dynamic incentive contract in a general continuous-time agency problem where inducing static first-best action is not always optimal. My framework generates two dynamic contracts new to the literature: (1) a “quiet-life” arrangement and (2) a suspension-based endogenously renegotiating contract. Both contractual forms induce a mixture of first-best and non-first-...