| Summary: | 碩士 === 國立臺北大學 === 社會學系 === 97 === This study proposed a convex payoff executive compensation plan to encourage manager work harder and to mitigate the agency problem. This convex compensation program gives manager the same expected value as the common executive options does. However, the number of the options is a monotonic increasing and convex function of the future stock price. This allows manager to get more shares of options if the manager performs better. The research shows that managers will work harder and better off when they face this convex payoff executive compensation program than they face the common executive compensation plans does. However, a good quality manager will choose a more convex payoff function, work harder and gets a higher expected utility than a low quality manager does. This study also found that with reasonable high goal setting, manager will choose a more convex payoff function, work harder and will be better off. However, if the goal is too unreasonable such that it is almost impossible to attain the goal, then no executive compensation program can encourage manager work harder. Furthermore, given a reasonable high goal setting, this convex payoff compensation program exhibits screening effect or a signaling effect. This means that firm can discriminate high quality manager with low quality manager by using this compensation plan. No matter how risk averse the manageris. The good quality manager will always choose a more convex payoff function than a less risk averse poor manager does, no matter how risk averse he does. Hence manager picks a more convex payoff function signals that he is a good quality manager.
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