Executive compensation, strategic competition, and relative performance evaluation: theory and evidence
We argue that strategic interactions between firms in an oligopoly can explain the puzzling lack of high-powered incentives in executive compensation contracts written by shareholders whose objective is to maximize the value of their shares. We derive the optimal compensation contracts for managers...
Gespeichert in:
| Hauptverfasser: | , |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Cambridge, Mass.
1996
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| Schriftenreihe: | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series
5648 |
| Schlagworte: | |
| Online-Zugang: | Volltext |
| Zusammenfassung: | We argue that strategic interactions between firms in an oligopoly can explain the puzzling lack of high-powered incentives in executive compensation contracts written by shareholders whose objective is to maximize the value of their shares. We derive the optimal compensation contracts for managers and demonstrate that the use of high-powered incentives will be limited by the need to soften product market competition. In particular, when managers can be compensated based on their own and their rivals' performance, we show that there will be an inverse relationship between the magnitude of high-powered incentives and the degree of competition in the industry. More competitive industries are characterized by weaker pay-performance incentives. Empirically, we find strong evidence of this inverse relationship in the compensation of executives in the United States. Our econometric results are not consistent with alternative theories of the effect of competition on executive compensation. We conclude that strategic considerations can preclude the use of high-powered incentives, in contrast to the predictions of the standard principal-agent model. |
| Beschreibung: | 54, [13] S. graph. Darst. |
Internformat
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| 490 | 1 | |a National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |v 5648 | |
| 520 | |a We argue that strategic interactions between firms in an oligopoly can explain the puzzling lack of high-powered incentives in executive compensation contracts written by shareholders whose objective is to maximize the value of their shares. We derive the optimal compensation contracts for managers and demonstrate that the use of high-powered incentives will be limited by the need to soften product market competition. In particular, when managers can be compensated based on their own and their rivals' performance, we show that there will be an inverse relationship between the magnitude of high-powered incentives and the degree of competition in the industry. More competitive industries are characterized by weaker pay-performance incentives. Empirically, we find strong evidence of this inverse relationship in the compensation of executives in the United States. Our econometric results are not consistent with alternative theories of the effect of competition on executive compensation. We conclude that strategic considerations can preclude the use of high-powered incentives, in contrast to the predictions of the standard principal-agent model. | ||
| 650 | 4 | |a Executives |x Salaries, etc | |
| 650 | 4 | |a Incentives in industry | |
| 650 | 4 | |a Performance contracts | |
| 700 | 1 | |a Samwick, Andrew |e Verfasser |0 (DE-588)124078796 |4 aut | |
| 776 | 0 | 8 | |i Erscheint auch als |n Online-Ausgabe |
| 830 | 0 | |a National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |v 5648 |w (DE-604)BV002801238 |9 5648 | |
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| id | DE-604.BV011143538 |
| illustrated | Illustrated |
| indexdate | 2024-07-09T18:04:43Z |
| institution | BVB |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-007468945 |
| oclc_num | 35195410 |
| open_access_boolean | 1 |
| owner | DE-19 DE-BY-UBM DE-521 |
| owner_facet | DE-19 DE-BY-UBM DE-521 |
| physical | 54, [13] S. graph. Darst. |
| publishDate | 1996 |
| publishDateSearch | 1996 |
| publishDateSort | 1996 |
| record_format | marc |
| series | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| series2 | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| spelling | Aggarwal, Raj Verfasser (DE-588)124543502 aut Executive compensation, strategic competition, and relative performance evaluation theory and evidence Rajesh Aggarwal ; Andrew A. Samwick Cambridge, Mass. 1996 54, [13] S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 5648 We argue that strategic interactions between firms in an oligopoly can explain the puzzling lack of high-powered incentives in executive compensation contracts written by shareholders whose objective is to maximize the value of their shares. We derive the optimal compensation contracts for managers and demonstrate that the use of high-powered incentives will be limited by the need to soften product market competition. In particular, when managers can be compensated based on their own and their rivals' performance, we show that there will be an inverse relationship between the magnitude of high-powered incentives and the degree of competition in the industry. More competitive industries are characterized by weaker pay-performance incentives. Empirically, we find strong evidence of this inverse relationship in the compensation of executives in the United States. Our econometric results are not consistent with alternative theories of the effect of competition on executive compensation. We conclude that strategic considerations can preclude the use of high-powered incentives, in contrast to the predictions of the standard principal-agent model. Executives Salaries, etc Incentives in industry Performance contracts Samwick, Andrew Verfasser (DE-588)124078796 aut Erscheint auch als Online-Ausgabe National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 5648 (DE-604)BV002801238 5648 http://papers.nber.org/papers/w5648.pdf kostenfrei Volltext |
| spellingShingle | Aggarwal, Raj Samwick, Andrew Executive compensation, strategic competition, and relative performance evaluation theory and evidence National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series Executives Salaries, etc Incentives in industry Performance contracts |
| title | Executive compensation, strategic competition, and relative performance evaluation theory and evidence |
| title_auth | Executive compensation, strategic competition, and relative performance evaluation theory and evidence |
| title_exact_search | Executive compensation, strategic competition, and relative performance evaluation theory and evidence |
| title_full | Executive compensation, strategic competition, and relative performance evaluation theory and evidence Rajesh Aggarwal ; Andrew A. Samwick |
| title_fullStr | Executive compensation, strategic competition, and relative performance evaluation theory and evidence Rajesh Aggarwal ; Andrew A. Samwick |
| title_full_unstemmed | Executive compensation, strategic competition, and relative performance evaluation theory and evidence Rajesh Aggarwal ; Andrew A. Samwick |
| title_short | Executive compensation, strategic competition, and relative performance evaluation |
| title_sort | executive compensation strategic competition and relative performance evaluation theory and evidence |
| title_sub | theory and evidence |
| topic | Executives Salaries, etc Incentives in industry Performance contracts |
| topic_facet | Executives Salaries, etc Incentives in industry Performance contracts |
| url | http://papers.nber.org/papers/w5648.pdf |
| volume_link | (DE-604)BV002801238 |
| work_keys_str_mv | AT aggarwalraj executivecompensationstrategiccompetitionandrelativeperformanceevaluationtheoryandevidence AT samwickandrew executivecompensationstrategiccompetitionandrelativeperformanceevaluationtheoryandevidence |