Baker, George P., Michael C. Jensen, and Kevin J. Murphy, "Compensation and Incentives: Practice vs. Theory," Journal of Finance 47, July 1988, 593-616.  Home/Search   Document Details and Download   Summary   Related Articles

....Section VI offers a summary and conclusions. II. Executive Compensation and Investment A. Executive Compensation Studies that examine the relationship between executive compensation and firm performance have produced conflicting results, rendering the topic prone for further investigation. Baker, Jensen, and Murphy (1988) discuss aspects of optimal contracting where current economic theory and actual practice seem particularly disassociated given the lack of correlation between pay and performance. Jensen and Murphy (1990) argue that how CEOs are paid is more relevant than how much they are paid and find that CEO ....

....that managers want to maximize investment (even in negative NPV projects) in order to maximize perquisites. Murphy (1985) documents a positive relationship between management compensation and firm size, suggesting that managers have an incentive to invest in projects to make the firm larger. Baker, Jensen, and Murphy (1988) find that compensation is positively related to promotions, which are more plentiful in large firms. Greater compensation, perquisites and promotions are all factors that may lead to over investment. Managers insulated from outside discipline may be more likely to over invest, leading to a ....

Baker, George P., Michael C. Jensen, and Kevin J. Murphy, "Compensation and Incentives: Practice vs. Theory," Journal of Finance 47, July 1988, 593-616.

Online articles have much greater impact   More about CiteSeer.IST   Add search form to your site   Submit documents   Feedback  

CiteSeer.IST - Copyright Penn State and NEC