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Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

Executive Compensation: Six Questions That Need Answering

  • John M. Abowd
  • David S. Kaplan
Journal of Economic Perspectives
vol. 13, no. 4, Fall 1999
(pp. 145–168)
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Abstract

This article address six questions concerning executive compensation, drawing on recent advances in the study of executive compensation, including the role of stock and option holdings: How much does executive compensation cost the firm? How much is executive compensation worth to the recipient? How well does executive compensation work? What are the effects of executive compensation? How much executive compensation is enough? Could executive compensation be improved? Our discussion will focus on the role of agency theory, which predicts that stock-based compensation will align executive and shareholder interests by linking the executive's compensation directly to increases in the market value of the company.

Citation

Abowd, John, M., and David S. Kaplan. 1999. "Executive Compensation: Six Questions That Need Answering." Journal of Economic Perspectives, 13 (4): 145–168. DOI: 10.1257/jep.13.4.145

JEL Classification

  • M12 Personnel Management; Executive Compensation
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