Abstract
We study the cash compensation paid to CEOs of private venture-backed U.S. companies. Using a large dataset on CEO base salaries and bonuses collected by VentureOne between 2002 and 2006, we test whether compensation contracts for CEOs in private venture - backed firms are optimally designed so to minimize agency costs, or instead reflect managerial self - dealing. Our findings support the optimal contract view in that CEO compensation is reliably higher for companies with better operating performance. Moreover, consistent with the proposition that compensation contracts in venture-backed firms should also reward the CEO for successful fundraising, we find that compensation is higher for CEOs who raised more VC financing, particularly in their last funding round. We further observe that CEOs who have the greatest opportunity to engage in self - dealing - founders and chairmen of the board do not have higher base salaries or cash bonuses. Overall, our results shed new light on the mechanisms VCs use to solve agency problems and implement value-enhancing governance in their portfolio companies.
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