GLOBALIZATION AND THE PROVISION OF INCENTIVES INSIDE THE FIRM: The E¤ect of Foreign Competition
نویسندگان
چکیده
This paper studies the e¤ect of changes in foreign competition on the structure of compensation and incentives of U.S. executives. We measure foreign competition as import penetration, and use tari¤s and exchange rates as instrumental variables to estimate its causal e¤ect on pay. We nd that higher foreign competition leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it increases whithin rm pay di¤erentials between executive levels, with CEOs typically experiencing the largest wage increases, partly because they receive the steepest incentive contracts. Finally, higher foreign competition is also associated with a higher demand for talent. These results indicate that increased foreign competition can explain some of the recent trends in compensation structures. JEL codes: M52, L1, J31
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