Research Handbooks in Corporate Law and Governance series
Edited by Stephen M. Bainbridge
Chapter 4: Entrepreneurship, compensation, and the corporation
Much of the economics literature on the compensation of various personnel involved with large, publicly held companies has failed to come to grips explicitly with three important economic realities. The first is that there is no single model of corporate organization that will turn up valid answers for all occasions. The corporate entity is a many-splendored thing, ranging from the elemental, one-person shop to the giant behemoth with millions of shareholders no one of whom has anything like a controlling influence on corporate affairs. In between these two lie every conceivable combination and permutation of ownership form and distribution, voting rights, contractual provisions (charters and by-laws included) relating to managerial authority and compensation, dividend policies, organizational culture, norms, and applicable laws. The second reality is that there are numerous economic functions involved in every corporation, although these intellectually distinguishable functions are rarely isolated for cogent analysis. Shortage of a rich vocabulary may be part of the problem, but chances are that analytical lethargy plays a larger role. For example, we frequently use the word “entrepreneurship” to describe the organizational—and sometimes purely managerial or administrative—task of founding a business, as though that were the sole role of the entrepreneur.
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