What a Nobel Prize-Winning Economist Has to Say About CEO Bonuses

On Monday, Oliver Hart, a professor at Harvard, and Bengt Holmstrom, a professor at the Massachusetts Institute of Technology, were awarded the Nobel Prize in economics for their research on contracts, in which they have examined everything from insurance contracts to employee-employer contracts. One of the most talked-about contracts topics: chief executive compensation contracts. When asked by reporters about the bonuses that some executives get, Holmstrom had this to say: “They seem extraordinarily high,” though he also notes that “in economics we don’t really take a stand on the size of the bonus.” Just how high is “extraordinarily high”? Many times it’s seven-figures high.