Most principal-agent literature has focused on how to control inefficiency caused by the information asymmetry. This article also addresses the control issue with regard to the compensation structure on how a board of directors as a principal could achieve an effective internal control over the CEO as an agent. Due to the unavol dable information asymmetry on the investment size between the board of directors and the CEO, the CEO is able to exploit the rents and use them as bribe not only to entrench himself but also to exploit more rents in the future. In the game theoretic model , the CEO chooses investment level , the second man decides to launch a palace coup or not, and the board of directors determines the pay gap between the CEO and the second man respectively. In equilibrium, the CEO chooses the optimal (or non optimal) investment for the shareholders when the pay gap between the CEO and the second man is larger (smaller) than that of the exploited rents. To our surprise, the second man’s equilibrium strategy ends up with no oalace coup regardless of whether the pay gap is larger than rents or not. In addition, the more able a CEO is, the larger the pay gap will be. Therefore , in equilibrium the board of directors could contr이 the CEO’s incentive by making the palace coup threat credible with the large pay gap. This article provides a new perspective on the role of the increased pay gap as an outcome of effective internal control, rather than an outcome of internal control failure