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Journal of Economic Perspectives: Vol. 13 No. 4 (Fall 1999)

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Executive Compensation: Six Questions That Need Answering

Article 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

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.

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Authors

Abowd, John M. (Cornell U, US Census Bureau, and NBER)
Kaplan, David S. (Bureau of Labor Statistics)

JEL Classifications

M12: Personnel Management; Executive Compensation

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