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http://ssrn.com/abstract=113509
 
 

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Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence


Rajesh K. Aggarwal


University of Minnesota - Twin Cities - Carlson School of Management

Andrew A. Samwick


Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)


Journal of Finance, Vol. 54

Abstract:     
We examine compensation contracts for managers in imperfectly competitive product markets. We show that strategic interactions among firms can explain the lack of relative performance-based incentives in which compensation decreases with rival firm performance. The need to soften product market competition generates an optimal compensation contract that places a positive weight on both own and rival performance. Firms in more competitive industries place greater weight on rival firm performance relative to own firm performance. We find empirical evidence of a positive sensitivity of compensation to rival firm performance that is increasing in the degree of competition in the industry.

JEL Classification: G30, J33

Accepted Paper Series


Not Available For Download

Date posted: September 4, 1998  

Suggested Citation

Aggarwal, Rajesh K. and Samwick, Andrew A., Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence. Journal of Finance, Vol. 54. Available at SSRN: http://ssrn.com/abstract=113509

Contact Information

Rajesh K. Aggarwal (Contact Author)
University of Minnesota - Twin Cities - Carlson School of Management ( email )
19th Avenue South
Minneapolis, MN 55455
United States
Andrew A. Samwick
Dartmouth College - Department of Economics ( email )
Hanover, NH 03755
United States
603-646-2893 (Phone)
603-646-2122 (Fax)
HOME PAGE: http://www.dartmouth.edu/~samwick
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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