Political Promotion, CEO Incentives, and the Relationship Between Pay and Performance

43 Pages Posted: 4 Oct 2014

See all articles by Jerry Cao

Jerry Cao

Independent

Michael Lemmon

University of Utah - Department of Finance

Xiaofei Pan

University of Wollongong

Meijun Qian

Australian National University (ANU) - College of Business and Economics

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Date Written: June 3, 2014

Abstract

Both theory and empirical evidence suggest that managers’ career concerns can serve as an important source of implicit economic incentives. We examine how incentives for political promotion are related to compensation policy and firm performance in Chinese state-owned enterprises (SOEs). We find that the likelihood that the CEO receives a political promotion is positively related to firm performance. We also find that CEOs with a higher likelihood of political promotion have lower pay levels and lower pay-for-performance sensitivity. Overall, the evidence suggests that competition in the political job market helps mitigate weak monetary incentives for CEOs in China.

Keywords: Managerial incentives, political promotion, performance, CEO compensation

JEL Classification: G30, G32, G34

Suggested Citation

Cao, Jerry and Lemmon, Michael and Pan, Xiaofei and Qian, Meijun and Tian, Gary Gang, Political Promotion, CEO Incentives, and the Relationship Between Pay and Performance (June 3, 2014). Available at SSRN: https://ssrn.com/abstract=2504930 or http://dx.doi.org/10.2139/ssrn.2504930

Jerry Cao

Independent

No Address Available

Michael Lemmon

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

Xiaofei Pan

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Meijun Qian

Australian National University (ANU) - College of Business and Economics ( email )

Canberra
Australia

Gary Gang Tian (Contact Author)

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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