Analysis of U.S. public companies CEOs’ compensations using optimal contract modeling

Abstract

The goal of the research is to analyze size and structure of U.S. public companies CEOs’ compensations using optimal contract modeling and elaborate recommendations for the optimal compensation contract model improvement. The tasks of the study are: review theoretical underpinnings and modern practices of executive compensation in U.S. public companies, difficulties in its modeling, apply the Multiplicative Model of Optimal CEO Incentives in Market Equilibrium to 2 different industries in order to compare size and structure of present CEO compensations with theoretically optimal, examine applicability and suggest directions for improvement of optimal compensation contract model. As the main result of the study, we have found that on average companies pay their CEOs compensations, which are higher than optimal and actual structure of compensations does not comply with theoretically optimal. Theoretical models shall consider more complex compensation structures.