The John M. Olin Center

Paper Abstract

658. Lucian Bebchuk and Jesse Fried, Paying for Long-Term Performance, 12/09; subsequently published in University of Pennsylvania Law Review, Vol. 158, No. 7, June 2010, 1915-1959.

Abstract: Firms and regulators around the world are now seeking to ensure that the compensation of public company executives is tied to long-term results to avoid creating incentives for excessive risk-taking. This paper analyzes how this objective can be best achieved. Focusing on equity-based compensation, the primary component of executive pay packages, we identify how such compensation could be best structured to tie remuneration to long-term results rather than short-term gains that might turn out to be illusory. We also analyze how equity compensation could be best designed to prevent the gaming of equity grants at either the front-end or the back-end.

658: PDF