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How to Pay Envious Managers – a Theoretical Analysis
Author(s) -
Crummenerl Marc,
Doll Tilmann,
Koziol Christian
Publication year - 2015
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12044
Subject(s) - shareholder , incentive , stock (firearms) , business , microeconomics , shareholder value , compensation (psychology) , production (economics) , perspective (graphical) , economics , industrial organization , finance , corporate governance , computer science , mechanical engineering , psychology , artificial intelligence , psychoanalysis , engineering
This paper analyses how envy affects the decisions of competing managers and their optimal stock‐based compensation from the perspective of shareholder value. We consider a typical framework in which managers can induce effort to reduce production costs and make decisions regarding production volume. At first glance, envy between managers from competing firms appears to be an unfavorable characteristic because it does not align the interests of managers with those of shareholders. However, our model finds that envy is a powerful incentive mechanism. The model yields three key findings: (i) envious managers outperform self‐interested managers, (ii) firms optimally hire envious managers, and (iii) shareholders do not grant any stock‐based compensation to envious managers.