We report evidence on chief executive officer ~CEO! turnover during the 1971 to 1994 period. We find that the nature of CEO turnover activity has changed over time. The frequencies of forced CEO turnover and outside succession both increased. However, the relation between the likelihood of forced CEO turnover and firm performance did not change significantly from the beginning to the end of the period we examine, despite substantial changes in internal governance mechanisms. The evidence also indicates that changes in the intensity of the takeover market are not associated with changes in the sensitivity of CEO turnover to firm performance. STOCKHOLDERS RELY ON INTERNAL AND EXTERNAL monitoring mechanisms to help resolve agency problems that arise from the separation of ownership and control in modern corporations. Boards of directors and blockholders are important internal control mechanisms whereas the takeover market is a major source of external control. Both academicians and practitioners have

We document that ownership by officers and directors of publicly-traded firms is on average higher today than earlier in the century. Managerial ownership rises from 13 percent for the universe of exchange-listed corporations in 1935, the earliest year for which such data exist, to 21 percent in 1995. We examine in detail the robustness of the increase and explore hypotheses to explain it. Higher managerial ownership has not substituted for alternative corporate governance mechanisms. Lower volatility and greater hedging opportunities associated with the development of financial markets appear to be important factors explaining the

Employees are motivated intrinsically as well as extrinsically. Intrinsic motivation is crucial when tacit knowledge in and between teams must be transferred. Organizational forms enable different kinds of motivation and have different capacities to generate and transfer tacit knowledge. Since knowledge generation and transfer are essential for a firm s sustainable competitive advantage, we ask specifically what kinds of motivation are needed to generate and transfer tacit knowledge, as opposed to explicit knowledge.

This paper provides an overview of the main theoretical elements and empirical underpinnings of a “managerial power ” approach to executive compensation. The managerial power approach recognizes that boards of publicly traded companies with dispersed ownership do not bargain at arms ’ length with managers, and that managers are able to influence their own pay arrangements. It thus views executive compensation not only as an instrument for addressing the agency problem between managers and shareholders, but also as part of the problem itself. We show that the managerial power approach can help explain many features of the executive compensation landscape, including ones that researchers have long viewed as puzzling. We explain that managerial influence produces efficiency costs because managers ’ seeking and camouflaging of rents produces

orporate governance is generally considered to be the set of complementary mechanisms that help align the actions and choices of managers with the interests of shareholders. Monitoring actions by the board of directors, debtholders, or

We examine a sample of firms that adopt "target ownership plans," under which managers are required to own a minimum amount of stock. We find that prior to plan adoption, such firms exhibit low managerial equity ownership and low stock price performance. Managerial equity ownership increases significantly in the two years following plan adoption. We also observe that excess accounting returns and stock returns are higher after the plan is adopted. Thus, for our sample of firms, the required increases in the level of managerial equity ownership result in improvements in firm performance.

We examine the distribution of incentives across executives with explicit divisional responsibilities, those with broad oversight authority over the firm, and CEOs. Oversight executives have pay-performance incentives that are $1.22 per thousand dollar increase in shareholder wealth higher than those of divisional executives. For CEOs, incentives are $5.65 per thousand higher than for executives with divisional responsibility. The aggregate pay-firm performance sensitivity of the top management team is substantial, at $32.32 per thousand for the median firm. CEO incentives are 42 to 58 percent of the aggregate incentives to the top management team. We match a subset of our divisional executives to the divisions they manage. We document a positive pay-divisional performance sensitivity and show that it is increasing in the precision of the divisional performance measure. The pay-firm performance sensitivity for divisional executives is decreasing in the precision of their divisional performance measure. These results are consistent with a principal-agent model with multiple signals of managerial effort.

Much of the existing theory of incentives describes a static relationship that lasts for just one transaction. This static assumption is not only unrealistic, but the resulting predictions appear to be at odds with many work organizations. The current paper introduces possible long-term interaction among agents, and studies how the design of explicit incentives and work organizations can exploit, and interact with, the implicit incentives generated by the repeated interaction of hc agents. The-optimal incentive scheme is shown to display many observed features of the increasingly popular "teams," such as low-powered, group incentives, and the use of self monitoring and decentralization of authority among team members.

We propose that dispersed outside ownership and the resulting managerial discretion come with costs but also with bene�ts. Even when tight control by shareholders is ex post ef�cient, it constitutes ex ante an expropriation threat that reduces managerial initiative and noncontractible investments. In addition, we show that equity implements state contingent control, a feature usually associated with debt. Finally, we demonstrate that monitoring, and hence ownership concentration, may con�ict with performance-based incentive schemes. I.

This paper studies how firms tie CEO compensation to firms' stock market performance. I demonstrate that in theory and in practice there is a tradeo# between giving CEOs incentives and forcing them to hold an un-diversified position in the firm. Unlike the results of the existing literature, market risk is not necessarily a cost of providing incentives. The cost of giving incentives is the potential loss of diversification for the CEO. As a result, CEO incentive decreases with firm-specific risk, but may not decrease with market risk. In performing the empirical tests, I also incorporate the recent critique by Prendergast (2000), which argues that the relation between risk and incentive level is unreliably estimated when we fail to consider the effect of risk on the benefit of giving incentives. I study both sides of the incentive-diversification tradeoff simultaneously. I am able to show that after controlling for the other side of the tradeoff, incentive increases with the CEOs' ability to affect firm value, and decreases with the firm-specific risk level of the firm.