This paper studies the effect of product market competition on the explicit compensation packages that firms offer to their CEOs, executives and workers. We use a large sample of both traded and non-traded UK firms and exploit a quasi-natural experiment associated to an increase in competition. The sudden appreciation of the pound in 1996 implied different changes in competition for sectors wit...

Variable pay creates a link between pay and performance but may also help firms in attracting more productive employees. Our experiment investigates the impact of performance pay on both incentives and sorting and analyzes the influence of repeated interactions between firms and employees on these effects. We show that (i) the opportunity to switch from a fixed wage to variable pay scheme incre...

This paper considers the effect of status or relative income on work effort, combining experimental evidence from a gift-exchange game with the analysis of multi-country ISSP survey data. We find a consistent negative effect of others’ incomes on individual effort in both datasets. The individual’s rank in the income distribution is a stronger determinant of effort than is others’ average incom...

The purpose of this paper is to examine the determinants of the variation in Czech managers’ pay levels. Among the questions we attempt to answer are: Are the managers in state-owned firms compensated differently than those in private owned firms? How much of the difference in pay is explained by differences in individual characteristics and job levels? What is the importance of the regional lo...

Reimbursement of commuting costs by employers has attracted little attention from economists. We develop a theoretical model of a monopsonistic employer who determines an optimal recruitment policy – in a spatial labour market with search frictions, and show that, in general, partial reimbursement of commuting cost will be an element of the recruitment policy. The empirical evidence we offer is...

This paper examines the influence that product market competition has on the use of incentive payment schemes. We use data from a large representative cross-section survey which allows us to control for other influences. We show that the degree of product market competition that an establishment faces has a significantly positive effect on the likelihood that it will use a performance-related p...

Previous studies have examined the manipulation of executive stock option awards and exercises, focusing on information timing by managers. In this paper, we investigate potential managerial manipulation of stock-price performance motivated by executive stock options. To distinguish performance manipulation from information timing, we examine stock-price performance surrounding the departure of...

Job Assignments under Moral Hazard: The Peter Principle Revisited The Peter Principle captures two stylized facts about hierarchies: first, promotions often place employees into jobs for which they are less well suited than for that previously held. Second, demotions are extremely rare. Why do organizations not correct ‘wrong’ promotion decision? This paper shows in a complete contracting setti...

We investigate CEO compensation for completing M&A deals. We find that CEOs who have more power to influence board decisions receive significantly larger bonuses. We also find a positive relation between bonus compensation and measures of effort, but not between bonus compensation and deal performance. CEOs with more power also tend to engage in larger deals relative to the size of their own fi...

This paper examines the incentive effects of different payoff structures in the National Hockey League. A rule change prior to the 1999-2000 season, which changed the way that teams were awarded points in overtime games, provides a natural experiment to test the reaction of teams to a change in the payoff structure. The rule change had the desired effect of increasing excitement during overtime...