Problem
In 2005, the co-founders of Google, Larry Page and Sergey Brin, asked that their annual pay be reduced to $1 (from $150,000 with bonuses of $206,556 in 2003, and $43,750 plus bonuses of $1,556 in 2004). Chief executive Eric Schmidt made the same request (Verne Kopytoff, "Google's Execs Paid $1 a Year," San Francisco Chronicle, April 9, 2005, C1, C2). Their compensation would be based on increases in the value of the vast amounts of Google stock each owned (as of March 28, 2005, Page had 36.5 million Google shares; Brin, 36.4 million; and Schmidt, 13.9 million). How would you feel about this offer if you were a shareholder? What are the implications for moral hazard, efficiency, and risk sharing? Can their decision be viewed as a form of signaling? If so, what are they signaling and to whom?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.