Relative Performance Evaluation, Sabotage and Collusion

63 Pages Posted: 18 Aug 2020

See all articles by Matthew J. Bloomfield

Matthew J. Bloomfield

The Wharton School of the University of Pennsylvania

Catarina Marvão

Technological University Dublin; Stockholm School of Economics - Stockholm Institute of Transition Economics (SITE)

Giancarlo Spagnolo

University of Rome Tor Vergata; EIEF; Centre for Economic Policy Research (CEPR); Stockholm School of Economics (SITE)

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Date Written: July 1, 2020

Abstract

We examine whether the potential for costly sabotage is a deterrent to firms’ use of relative performance evaluation (“RPE”) in CEO pay plans. We exploit illegal cartel membership as a source of variation in the potential for costly sabotage and document that firms are more likely to use RPE if they are currently cartel members. Moreover, firms frequently drop RPE from their CEOs’ pay plans immediately after their cartels are detected, convicted and punished. We further provide suggestive evidence that the potential for costly sabotage explains these patterns; cartel membership severs the empirical association between RPE and competitive aggression.

Keywords: cartels, Collusion, Compensation, Relative Performance Evaluation, Sabotage

JEL Classification: G34, L22

Suggested Citation

Bloomfield, Matthew J. and Marvão, Catarina and Spagnolo, Giancarlo, Relative Performance Evaluation, Sabotage and Collusion (July 1, 2020). CEPR Discussion Paper No. DP15115, Available at SSRN: https://ssrn.com/abstract=3674891

Matthew J. Bloomfield (Contact Author)

The Wharton School of the University of Pennsylvania ( email )

1325 Steinberg-Dietrich Hall
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Philadelphia, PA PA 19103-1724
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6073513042 (Phone)
6073513042 (Fax)

Catarina Marvão

Technological University Dublin ( email )

Dublin
Ireland

Stockholm School of Economics - Stockholm Institute of Transition Economics (SITE) ( email )

P.O. Box 6501
S-113 83 Stockholm, 11383
Sweden

Giancarlo Spagnolo

University of Rome Tor Vergata ( email )

Faculty of Economics - DEF
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

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