The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu The leading online blog in the fields of corporate governance and financial regulation. Wed, 08 Jul 2026 11:32:24 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.8 https://corpgov.law.harvard.edu/wp-content/uploads/2024/02/cropped-photography-4-e1706898544564-1-32x32.png Internal vs. External CEO Choice and the Structure of Compensation Contracts – The Harvard Law School Forum on Corporate Governance https://corpgov.law.harvard.edu 32 32 Internal vs. External CEO Choice and the Structure of Compensation Contracts https://corpgov.law.harvard.edu/2012/08/01/internal-vs-external-ceo-choice-and-the-structure-of-compensation-contracts/?utm_source=rss&utm_medium=rss&utm_campaign=internal-vs-external-ceo-choice-and-the-structure-of-compensation-contracts https://corpgov.law.harvard.edu/2012/08/01/internal-vs-external-ceo-choice-and-the-structure-of-compensation-contracts/#comments Wed, 01 Aug 2012 13:19:44 +0000 http://blogs.law.harvard.edu/corpgov/?p=31135?d=20150105110907EST Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday, August 1, 2012
Editor's Note:

The following post comes to us from Frédéric Palomino of the Department of Economics at EDHEC Business School and Eloïc-Anil Peyrache of the Department of Economics and Decision Sciences at HEC Paris.

The dramatic and unprecedented increase in CEO pay in the 1980s and 1990s led to questioning the efficiency of CEO compensation packages. The debate concentrated first on the pay-performance sensitivity and then moved to the compensation level, given the observed widening gap between the pay level of executive officers and other employees. However, another important change regarding CEOs took place over the same period—their working experience prior to being appointed as a CEO. Increasingly, boards of directors have hired CEOs outside their firm.

In our paper, Internal vs. External CEO Choice and the Structure of Compensation Contracts, forthcoming in the Journal of Financial and Quantitative Analysis, we provide a rationale for the simultaneous increases in (i) CEO pay, (ii) use of equity in compensation schemes, and (iii) hiring of CEOs externally.

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