Law Commons^™

Insider Trading And Ceo Pay, M. Todd Henderson

Vanderbilt Law Review

This Article presents evidence showing that boards of directors "bargain" with executives about the profits they expect to make from trades in firm stock. The evidence suggests that executives whose trading freedom increased using Rule 10b5-1 trading plans experienced reductions in other forms of pay to offset the potential gains from trading. There are two potential benefits from trading-portfolio optimization and informed trading profits- and this Article allows us to isolate them. The data show that boards pay executives in a way that reflects the profits they are expected to earn from informed trades. It also casts some doubt on …