Effects of Managerial Labor Market on Executive Compensation: Evidence from Job-Hopping

Journal of Accounting and Economics Forthcoming

49 Pages Posted: 9 May 2013 Last revised: 3 Feb 2015

See all articles by Huasheng Gao

Huasheng Gao

Fanhai International School of Finance, Fudan University

Juan Luo

University of Adelaide - Business School; Financial Research Network (FIRN)

Tilan Tang

Temple University - Department of Finance

Date Written: January 27, 2015

Abstract

We find that companies dramatically raise their incumbent executives’ pay, especially equity-based pay, after losing executives to other firms. The pay raise is larger when incumbent executives have greater employment mobility in the labor market, when companies lose senior executives, and when job-hopping executives receive favorable job offers in their new firms. A company’s subsequent pay raise to incumbent executives after losing an executive diminishes its deficiency in executive compensation relative to its industry peer firms, and is effective at retaining its incumbent executives. Overall, our evidence suggests that executive job-hopping activity has significant effects on firms’ compensation policies.

Keywords: Managerial Labor Market; Executive Compensation; Job-hopping

JEL Classification: G34, J33

Suggested Citation

Gao, Huasheng and Luo, Juan and Tang, Tilan, Effects of Managerial Labor Market on Executive Compensation: Evidence from Job-Hopping (January 27, 2015). Journal of Accounting and Economics Forthcoming, Available at SSRN: https://ssrn.com/abstract=2262604 or http://dx.doi.org/10.2139/ssrn.2262604

Huasheng Gao

Fanhai International School of Finance, Fudan University ( email )

Beijing West District Baiyun Load 10th
Shanghai, 100045
China
2165642222 (Phone)
2165642222 (Fax)

Juan Luo (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia
+61 8 8313 0133 (Phone)
+61 8 8223 4782 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Tilan Tang

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

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