Abstract
This paper describes recent trends in CEO compensation of US and Japanese firms, a brief summary of continuous-time agency models, and some results obtained from Hori and Osano (2012) that incorporates manager’s loss aversion. Recently, CEO compensation in US still includes a base salary while the largest component of it is stock based ones such as restricted stock grants. Based on DeMarzo and Sannikov (2006) that is a seminal study on continuous-time agency models, we introduce incentive compatible constraints and how the optimal contract is derived. Hori and Osano (2012) shows that the optimal CEO compensation includes a salary that is less sensitive to the firm performance.
