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Executive Compensation, Monitoring and Collusion in Boards of Directors
1 : Universite de Toulouse
TBS
This paper studies the intensity with which a board of directors should monitor a CEO in order to maximize firm's performance in a framework with asymmetric information, collusion and uncertainty about the optimal projects for the firm. We derive the optimal incentive compensation contract of the CEO and characterize conditions under which these incentive compensation contracts are sufficient in order to induce the CEO not to mis-behave irrespective of the intensity of monitoring. In addition, we provide empirical predictions about the relationship between the intensity of monitoring, incentive compensation and firms' characteristics.
