Pay Disparity, External Pay Alternatives and Turnover of the Second Best Paid Executive

38 Pages Posted: 2 Feb 2014

See all articles by Stephanie Mankel

Stephanie Mankel

EBS Universität für Wirtschaft und Recht - EBS Business School

Ansgar Richter

University of Liverpool - Management School (ULMS)

Nikolaus "Klaus" Uhlenbruck

University of Montana

Date Written: January 15, 2014

Abstract

We contribute to the intersection of top executive turnover and compensation research by investigating pay structure implications on turnover, focusing on the second best-paid executive as the one being closest to winning the tournament for the best-paid position. Building on tournament theory and using competing-risks survival regression, we develop and test hypotheses with regard to the effects of pay disparity among a firm’s top executives and external pay alternatives on the exit of the second best-paid executive. For a sample of S&P 500 firms in the 14-year period between 1993 and 2006, we find that comparisons with higher paid executives and external pay alternatives matter for individuals’ decisions whether to stay in or to leave a pay tournament, whereas comparisons to lower paid executives do not.

Keywords: Compensation, Top Management Team Turnover, Tournament Theory und Survival Analysis

Suggested Citation

Mankel, Stephanie and Richter, Ansgar and Uhlenbruck, Nikolaus "Klaus", Pay Disparity, External Pay Alternatives and Turnover of the Second Best Paid Executive (January 15, 2014). EBS Business School Research Paper No. 14-09. Available at SSRN: https://ssrn.com/abstract=2388215 or http://dx.doi.org/10.2139/ssrn.2388215

Stephanie Mankel (Contact Author)

EBS Universität für Wirtschaft und Recht - EBS Business School ( email )

Gustav-Stresemann-Ring 3
65189 Wiesbaden, Hessen
Germany

Ansgar Richter

University of Liverpool - Management School (ULMS) ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom
44 [0]151 795 3713 (Phone)
44 [0]151 795 3001 (Fax)

Nikolaus "Klaus" Uhlenbruck

University of Montana ( email )

Missoula, MT 59812
United States

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