My theoretical research on CEO compensation aims to construct rich models that capture the complexity of the CEO’s job, but are at the same time tractable and transparent, making both the economic intuition and empirical implications clear. These models have shown, for example, that CEOs should be paid with debt as well as equity, that the vesting period of a CEO’s equity should extend beyond his tenure, and the optimal measure of incentives is the CEO’s dollar equity stake in the firm scaled by annual pay. My empirical work shows how short-term incentives affect CEO behavior.
Surveys:
- 2009 brief, non-technical survey of theories (Edmans, Gabaix EFM 2009)
- 2016 comprehensive survey of theories, with unifying model (Edmans, Gabaix JEL 2016)
- 2017 comprehensive survey of theories and evidence, with lots of stylized facts, charts, and tables (Edmans, Gabaix, Jenter Handbook 2017)
Theory:
- Debt-based compensation (Edmans, Liu RF 2011)
- CEO incentives should be low and decline with firm size (Edmans, Gabaix, Landier RFS 2009)
- Optimal long-term contracts to deter short-termism (Edmans, Gabaix, Sadzik, Sannikov JF 2012)
- Effect of risk on CEO market equilibrium (Edmans, Gabaix RFS 2011a)
- Framework for tractable contracts under risk aversion (Edmans, Gabaix RFS 2011b)
Empirics
- Survey of directors and investors on how they set pay (Edmans, Gosling, Jenter, 2021)
- Effect of vesting equity on
- Investment (Edmans, Fang, Lewellen RFS 2017)
- News releases (Edmans, Goncalves-Pinto, Groen-Xu, Wang RFS 2018)
- Repurchases and M&A (Edmans, Fang, Huang JAR forthcoming)