Paying for staying : managerial contracts and the retention motive

Abstract

Talented managers may leave the firm in order to work elsewhere. Focusing on the portability of managers' resources, we develop a model in which managerial compensation is designed to prevent inefficient departure. The model rationalizes the widespread use of fl at salaries in combination with performance-vesting stock options and is consistent with observed differences in compensation contracts across individuals, firms, industries, and countries.