British Academy grant for LSE Finance academic

We are pleased to announce that the British Academy’s Research Awards Committee has chosen to support new research by Dr Moqi Xu of the LSE Department of Finance. The work, on CEO Contract Incentives, will receive funding of just under £10,000.

The British Academy has a strong record in the promotion of collaborative, infrastructural, and often international work, with the stated aim of fostering high-quality research in small-scale projects. The decision to support Dr Xu’s work reflects the outstanding level of research produced in the Department: work that is capable of influencing and advancing understanding in the field. 

Commenting on the award, Dr Xu said: “Well-structured managerial incentive contracts can improve performance and reduce risk. Regulation that fosters such incentives across firms can thus promote long-term economic growth and stability. However, the observed recent growth of UK and US executive compensation levels - and its insensitivity to performance - raises doubts concerning their effectiveness and fairness.

Given the importance and awareness of the issue, there is surprisingly little agreement on what actually constitutes good incentives. One problem with the current empirical research on executive compensation is that most of the available data is on realised compensation. Yet, managers may operate under certain incentives but change their contracts ex post. The frequency and conditions for such changes are unknown, which makes it hard to interpret conclusions based on realised compensation data.

We have collected the most comprehensive set of managerial employment contracts to date. The British Academy/Leverhulme grant will allow us to convert the contract text into a database. This can be used to answer many predictions of contract theory models that are still untested, starting with predictions on the renewal terms, evaluation periods, and compensation structure”.