Executive Compensation: The Trend Toward One Size Fits All

In a new paper, I document a recent and strong standardization in the structure of executive compensation. This standardization is unexpected since, in principle, the optimal incentive contract is a function of many factors that vary among firms. Executives receive compensation in many different forms, including salaries, bonuses, long-term incentives, stock, stock options, retirement benefits, and various types of perquisites. Based on contract theory, we expect that each company designs its compensation plans using these elements in different proportions. However, even though we observe much heterogeneity in the design of compensation plans, more than 25 percent of the variation across … Read more