TY - JOUR
T1 - A compensation scheme for optimal investment decisions
AU - Cardoso, D.
AU - Pereira, P.J.
PY - 2015/5/2
Y1 - 2015/5/2
N2 - We derive an optimal compensation scheme that aims to eliminate inadequate misaligned managerial actions ensuring optimal investment decisions. With this model, the owners of the option to invest do not need to follow the future evolution of project value drivers in order to guarantee optimal behavior. The optimal contract scheme is a correct balance between effort costs, fixed wages, and a value-sharing bonus. As shown, even small deviations from the optimal compensation scheme may lead to highly sub-optimal decisions. The model is extended to accommodate impatience behavior by the managers or the shareholders.
AB - We derive an optimal compensation scheme that aims to eliminate inadequate misaligned managerial actions ensuring optimal investment decisions. With this model, the owners of the option to invest do not need to follow the future evolution of project value drivers in order to guarantee optimal behavior. The optimal contract scheme is a correct balance between effort costs, fixed wages, and a value-sharing bonus. As shown, even small deviations from the optimal compensation scheme may lead to highly sub-optimal decisions. The model is extended to accommodate impatience behavior by the managers or the shareholders.
UR - http://www.scopus.com/inward/record.url?eid=2-s2.0-84939256968&partnerID=MN8TOARS
UR - https://www.sciencedirect.com/science/article/pii/S1544612315000483?via%3Dihub
U2 - 10.1016/j.frl.2015.05.004
DO - 10.1016/j.frl.2015.05.004
M3 - Article
SN - 1544-6123
VL - 14
SP - 150
EP - 159
JO - Finance Research Letters
JF - Finance Research Letters
ER -