Abstract

http://ssrn.com/abstract=5184
 
 

Citations



 


 



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)

March 1997


Abstract:     
This paper examines optimal compensation contracts for managers of firms in imperfectly competitive markets. Previous studies have not found convincing evidence of high-powered incentives and relative performance evlauation. We show that strategic interactions among firms can explain this lack of strong performance-based incentives. When managers can be compensated based on their own and their rivals' performance, the need to soften product market competition generates an optimal compensation contract that places a positive weight on both own and rival performance. Across industries, the theory also predicts that firms in more competitive industries place greater weight on rival firm performance relative to own firm performance. We test the predictions empirically using recent data on compensation of executives at large corporations. We find evidence of a positive sensitivity of compensation to rival firm performance which is increasing in the degree of competition in the firm's industry.

JEL Classification: J33

working papers series


Not Available For Download

Date posted: December 11, 1996  

Suggested Citation

Aggarwal, Rajesh K. and Samwick, Andrew A., Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence (March 1997). Available at SSRN: http://ssrn.com/abstract=5184

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
Feedback to SSRN


Paper statistics
Abstract Views: 1,854

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.359 seconds