Handbook of Empirical Corporate Finance

Chapter 17 EXECUTIVE COMPENSATION AND INCENTIVES

RAJESH K. AGGARWAL

Carlson School of Management, University of Minnesota

Contents

Abstract

Keywords

1. Introduction

2. Trends in executive compensation

2.1. Short-term components of compensation

2.2. Long-term components of compensation

2.2.1. Restricted stock

2.2.2. Stock options

2.2.3. Long-term incentive plans

2.3. Aggregate measure of compensation

2.4. Compensation statistics

2.4.1. Total annual compensation

2.4.2. Holdings of stock and options

3. Incentives and agency

3.1. Pay-performance sensitivities

3.2. How should incentives be set?

3.3. Executive discretion

3.4. Firm size

3.5. Accounting returns

3.6. Ability

3.7. Incentives within firms

4. Relative performance evaluation

4.1.