Abstract

http://ssrn.com/abstract=2419099
 


 



Pay Harmony: Peer Comparison and Executive Compensation


Claudine Madras Gartenberg


New York University (NYU) - Leonard N. Stern School of Business

Julie Wulf


Harvard Business School

March 26, 2014

Harvard Business School Strategy Unit Working Paper No. 13-041

Abstract:     
This study suggests that peer comparison affects both wage setting and productivity within firms. We report three changes in division manager compensation following a 1991-1992 controversy over executive pay. We argue that this controversy increased wage comparisons within firms, particularly those with geographically-dispersed managers – managers with the greatest information frictions. Following the controversy, pay in dispersed firms co-moves more and is less sensitive to individual performance. Relatedly, pay disparity between managers located in different states decreases relative to that of co-located managers. Finally, division productivity falls in dispersed firms, particularly among managers at the low end of the wage distribution.

Number of Pages in PDF File: 62

Keywords: Executive Compensation, Pay-for-Performance, Internal Labor Markets, Peer Comparison, Firm Geography

JEL Classification: J33, J44, M12, M52

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Date posted: April 3, 2014  

Suggested Citation

Gartenberg, Claudine Madras and Wulf, Julie, Pay Harmony: Peer Comparison and Executive Compensation (March 26, 2014). Harvard Business School Strategy Unit Working Paper No. 13-041. Available at SSRN: http://ssrn.com/abstract=2419099 or http://dx.doi.org/10.2139/ssrn.2419099

Contact Information

Claudine Madras Gartenberg
New York University (NYU) - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
Julie M. Wulf (Contact Author)
Harvard Business School ( email )
Harvard Business School
Boston, MA
United States
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