Compensation Disclosures and Strategic Commitment: Evidence from Revenue-Based Pay

64 Pages Posted: 1 Nov 2016 Last revised: 13 Aug 2020

See all articles by Matthew J. Bloomfield

Matthew J. Bloomfield

The Wharton School of the University of Pennsylvania

Date Written: August 6, 2020

Abstract

A 2006 rule change mandated that publicly traded companies provide more detailed disclosures about executives’ compensation plans. In response to the new disclosure requirements, Cournot firms with large market shares add revenue-based pay to their CEOs’ pay packages. This change in pay practices coincides with a shift towards more aggressive product market equilibria, characterized by greater production expenditures and lower margins. Jointly, these patterns are consistent with predictions from the theory of “strategic delegation,” and suggest that the new disclosure requirements enhanced the viability of committing through executive incentives. After adopting the new disclosure requirements, many firms appear to restructure their executives’ pay packages as strategic devices designed to make rivals curtail their competitive actions.

Keywords: Strategic Delegation; Oligopoly; Commitment; Compensation; Disclosure; Competition

JEL Classification: D22; D80; J33; L13; M48

Suggested Citation

Bloomfield, Matthew J., Compensation Disclosures and Strategic Commitment: Evidence from Revenue-Based Pay (August 6, 2020). Available at SSRN: https://ssrn.com/abstract=2862069 or http://dx.doi.org/10.2139/ssrn.2862069

Matthew J. Bloomfield (Contact Author)

The Wharton School of the University of Pennsylvania ( email )

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