On May 17, 2022, Beatrice Michaeli (University of California, Los Angeles, USA) presented the paper "Boards and Executive Compensation: Another Look" at the TRR 266/TAF Research Seminar. The paper is joint work with Martin Gregor (Charles University, Institute of Economic Studies, Czech Republic).
This paper examines the optimal contracts offered to CEOs and boards in a classic economic setting where a centralized (outsider-controlled) board approves or rejects an investment opportunity presented by an empire-building CEO. The CEO has a tendency to overinvest due to private perks and delivers an optimally constructed but credible report about the investment project to the board. The board has non-financial—career or reputation related—biases such that the board incurs a private cost when the approved project destroys the company value and earns a private benefit when it enhances the value. The main research question is what motivates shareholders to construct contracts that tolerate imprecise project information and excessive investments. The authors show that optimal contracts trade-off investment efficiency and share of profits.
Beatrice Michaeli earned her Ph.D. in accounting at Columbia Business School in New York and joined UCLA Anderson as an assistant professor of accounting in 2014. Her research addresses analytical models in the areas of financial reporting, voluntary disclosure, performance measurement, incentives and contracting. Her work has been published in prestigious journals such as The Accounting Review, Journal of Accounting and Economics, Review of Accounting Studies and Management Science.