EXECUTIVE COMPENSATION: A MULTI-TASKING MODEL

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Abstract

This study develops a model of a multi-tasking executive whose behavior is motivated by the specific forms of compensation received. This model extends the theory of corporate finance in two significant ways: first, it examines risk-averse executive behavior in a multitasking environment, and, second, it
yields a theoretical understanding of why one form of variable compensation provides different incentive than another. As a generalization, we find that option compensation is more effective than stock compensation in inducing the executive to take on investment risk, while the inverse is true for inducing the executive to issue debt or pay dividends.

Keywords: executive compensation, corporate governance, stock compensation

How to cite this paper: Schrenk, L. P. (2007). Executive compensation: A multi-tasking model. Corporate Board: role, duties and composition, 3(3), 23-32. https://doi.org/10.22495/cbv3i3art3