Orders of Merit and CEO Compensation: Evidence from a Natural Experiment
Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research
July 4, 2012
Governments worldwide bestow upon their citizens orders of merit to reward distinguished service. Swedish CEOs used to receive such awards for arriving at the top corporate position rather than for on-the-job performance once there. After a 1974 legal reform in which Sweden discontinued the conferral of orders of merit, shareholders increased CEOs’ salary to compensate for the loss of these nonmonetary external tournament awards to uphold the internal managerial tournament. The finding that orders of merit function as managerial tournament status awards has implications for our understanding of CEO compensation policies from the perspective of both firms and governments.
Number of Pages in PDF File: 46
Keywords: Executive compensation, positional good, order of merit
JEL Classification: G30, J33working papers series
Date posted: July 4, 2012 ; Last revised: January 29, 2014
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