Pay Disparity, External Pay Alternatives and Turnover of the Second Best Paid Executive
38 Pages Posted: 2 Feb 2014
Date Written: January 15, 2014
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: Suggested Citation