Performance incentives within firms: the effect of managerial responsibility
Empirical research on executive compensation has focused almost exclusively on the incentives provided to chief executive officers. However, firms are run by teams of managers, and a theory of the firm should also explain the distribution of incentives and responsibilities for other members of the t...
Gespeichert in:
| Hauptverfasser: | , |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Cambridge, Mass.
1999
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| Schriftenreihe: | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series
7334 |
| Schlagworte: | |
| Online-Zugang: | Volltext |
| Zusammenfassung: | Empirical research on executive compensation has focused almost exclusively on the incentives provided to chief executive officers. However, firms are run by teams of managers, and a theory of the firm should also explain the distribution of incentives and responsibilities for other members of the top management team. An extension of the standard principal-agent model to allow for multiple signals of effort predicts that executives who have other, more precise signals of their effort than firm performance will have compensation that is less sensitive to the overall performance of the firm. We test this prediction in a comprehensive panel dataset of executives at large corporations by comparing executives with explicit divisional responsibilities to those with broad oversight authority over the firm and to CEOs. Controlling for executive fixed effects and the level of compensation, we find that CEOs have pay-performance incentives that are $5.85 per thousand dollar increase in shareholder wealth higher than the pay-performance incentives of executives with divisional responsibility. Executives with oversight authority have pay-performance incentives that are $1.26 per thousand higher than those of executives with divisional responsibility. The aggregate pay-performance sensitivity of the top management team is quite substantial, at $30.24 per thousand dollar increase in shareholder wealth for the median firm in our sample. Our work sheds light on the alignment of responsibility and incentives within firms and suggests that the principal-agent model provides an appropriate characterization of the internal organization of the firm. |
| Beschreibung: | 40 S. graph. Darst. |
Internformat
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| 490 | 1 | |a National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |v 7334 | |
| 520 | |a Empirical research on executive compensation has focused almost exclusively on the incentives provided to chief executive officers. However, firms are run by teams of managers, and a theory of the firm should also explain the distribution of incentives and responsibilities for other members of the top management team. An extension of the standard principal-agent model to allow for multiple signals of effort predicts that executives who have other, more precise signals of their effort than firm performance will have compensation that is less sensitive to the overall performance of the firm. We test this prediction in a comprehensive panel dataset of executives at large corporations by comparing executives with explicit divisional responsibilities to those with broad oversight authority over the firm and to CEOs. Controlling for executive fixed effects and the level of compensation, we find that CEOs have pay-performance incentives that are $5.85 per thousand dollar increase in shareholder wealth higher than the pay-performance incentives of executives with divisional responsibility. Executives with oversight authority have pay-performance incentives that are $1.26 per thousand higher than those of executives with divisional responsibility. The aggregate pay-performance sensitivity of the top management team is quite substantial, at $30.24 per thousand dollar increase in shareholder wealth for the median firm in our sample. Our work sheds light on the alignment of responsibility and incentives within firms and suggests that the principal-agent model provides an appropriate characterization of the internal organization of the firm. | ||
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| id | DE-604.BV013162708 |
| illustrated | Illustrated |
| indexdate | 2024-07-09T18:40:05Z |
| institution | BVB |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-008967985 |
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| physical | 40 S. graph. Darst. |
| publishDate | 1999 |
| publishDateSearch | 1999 |
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| 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 Performance incentives within firms the effect of managerial responsibility Rajesh K. Aggarwal ; Andrew A. Samwick Cambridge, Mass. 1999 40 S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 7334 Empirical research on executive compensation has focused almost exclusively on the incentives provided to chief executive officers. However, firms are run by teams of managers, and a theory of the firm should also explain the distribution of incentives and responsibilities for other members of the top management team. An extension of the standard principal-agent model to allow for multiple signals of effort predicts that executives who have other, more precise signals of their effort than firm performance will have compensation that is less sensitive to the overall performance of the firm. We test this prediction in a comprehensive panel dataset of executives at large corporations by comparing executives with explicit divisional responsibilities to those with broad oversight authority over the firm and to CEOs. Controlling for executive fixed effects and the level of compensation, we find that CEOs have pay-performance incentives that are $5.85 per thousand dollar increase in shareholder wealth higher than the pay-performance incentives of executives with divisional responsibility. Executives with oversight authority have pay-performance incentives that are $1.26 per thousand higher than those of executives with divisional responsibility. The aggregate pay-performance sensitivity of the top management team is quite substantial, at $30.24 per thousand dollar increase in shareholder wealth for the median firm in our sample. Our work sheds light on the alignment of responsibility and incentives within firms and suggests that the principal-agent model provides an appropriate characterization of the internal organization of the firm. Ökonometrisches Modell Executives Rating of United States Econometric models Executives Salaries, etc. United States Econometric models Incentives in industry United States Econometric models Span of control United States Econometric models USA Samwick, Andrew Verfasser (DE-588)124078796 aut Erscheint auch als Online-Ausgabe National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 7334 (DE-604)BV002801238 7334 http://papers.nber.org/papers/w7334.pdf kostenfrei Volltext |
| spellingShingle | Aggarwal, Raj Samwick, Andrew Performance incentives within firms the effect of managerial responsibility National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series Ökonometrisches Modell Executives Rating of United States Econometric models Executives Salaries, etc. United States Econometric models Incentives in industry United States Econometric models Span of control United States Econometric models |
| title | Performance incentives within firms the effect of managerial responsibility |
| title_auth | Performance incentives within firms the effect of managerial responsibility |
| title_exact_search | Performance incentives within firms the effect of managerial responsibility |
| title_full | Performance incentives within firms the effect of managerial responsibility Rajesh K. Aggarwal ; Andrew A. Samwick |
| title_fullStr | Performance incentives within firms the effect of managerial responsibility Rajesh K. Aggarwal ; Andrew A. Samwick |
| title_full_unstemmed | Performance incentives within firms the effect of managerial responsibility Rajesh K. Aggarwal ; Andrew A. Samwick |
| title_short | Performance incentives within firms |
| title_sort | performance incentives within firms the effect of managerial responsibility |
| title_sub | the effect of managerial responsibility |
| topic | Ökonometrisches Modell Executives Rating of United States Econometric models Executives Salaries, etc. United States Econometric models Incentives in industry United States Econometric models Span of control United States Econometric models |
| topic_facet | Ökonometrisches Modell Executives Rating of United States Econometric models Executives Salaries, etc. United States Econometric models Incentives in industry United States Econometric models Span of control United States Econometric models USA |
| url | http://papers.nber.org/papers/w7334.pdf |
| volume_link | (DE-604)BV002801238 |
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