Hard debt, soft CEOs, and union rents
Abstract
Purpose
This paper aims to derive insights about optimal managerial compensation and firm capital structure in unionized firms.
Design/methodology/approach
This paper uses applied game theory to address problems of CEO motivation in companies with unionized workforces.
Findings
Managers can use high levels of debt and costly bankruptcy to win wage concessions from workers. Alternatively, workers can obstruct management in the detection of poor work. CEO compensation that encourages rent sharing may reduce union hostility and associated deadweight losses. Shareholder value may be maximized by CEO incentive contracts with limited upsides, lower levels of pay, and some entrenchment protections.
Originality/value
This is the only study to use applied game theory to look at how CEO pay and capital structure affects the productivity of a unionized workforce.
Keywords
Citation
Wilson, L. (2011), "Hard debt, soft CEOs, and union rents", Managerial Finance, Vol. 37 No. 8, pp. 736-764. https://doi.org/10.1108/03074351111146201
Publisher
:Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited