From Knowledge Wharton--"Incentives for the Long Run: An Executive Compensation Plan That Looks Beyond the Next Quarter." Excerpt:
In a working paper titled, "Dynamic Incentive Accounts," Edmans, along with Xavier Gabaix and Tomasz Sadzik of New York University, and Yuliy Sannikov of Princeton University, outline a system that escrows compensation for a set period of years stretching into the executive's retirement. The longer time frame is designed to prevent the executive from taking short-term actions that may enrich the manager at the expense of the firm's future profits. The plan also provides a rebalancing mechanism to maintain a constant percentage of compensation in cash and stock, so that the executive always has sufficient equity in the firm to provide performance incentives -- even if the stock price falls.Posted by B. Janell Grenier at May 28, 2009 11:32 AM