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Chahine, Salim; Goergen, Marc --- "CEO Compensation and Stock Options in IPO Firms" [2012] ELECD 607; in Thomas, S. Randall; Hill, G. Jennifer (eds), "Research Handbook on Executive Pay" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on Executive Pay

Editor(s): Thomas, S. Randall; Hill, G. Jennifer

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781849803960

Section: Chapter 9

Section Title: CEO Compensation and Stock Options in IPO Firms

Author(s): Chahine, Salim; Goergen, Marc

Number of pages: 16

Extract:

9 CEO compensation and stock options in IPO firms
Salim Chahine and Marc Goergen


1 INTRODUCTION

"Pay without performance", "rent appropriation", or pay "under the radar". Despite the
economic crisis and significant collective pay cuts, the chief executives of the 500 biggest
companies in the US received an average $8 million per head in 2009.1 Over the last two
or three decades, the compensation of executives and in particular CEOs of mature firms
has been the subject of a debate fuelled by corporate-governance activists and academics.
As a result, there is now a substantial body of research on the determinants of executive
compensation and its association with firm performance.
Several studies have linked the design of executive compensation to organizational and
institutional characteristics (see e.g. Balkin and Gomez-Mejia, 1987). More recently,
developments of the principal­agent theory have examined the motivation behind and
the incentives created by executive compensation from a behavioral perspective.
Specifically, agency problems might occur from the divergence of interests between the
agent (the CEO, i.e. the decision-maker) and the principal (the shareholders, the risk-
bearers) resulting in the former taking advantage of the latter. However, despite extensive
research on CEO compensation in mature firms, as yet little attention has been given to
the role and design of executive pay in firms going public.
An initial public offering (IPO) is a cornerstone in the life of a corporation and is
characterized by information asymmetries between the management and outside inves-
tors ...