Pulling together by paying together: The effect of product market competition on TMT incentive dispersion

Anutchanat Jaroenjitrkam, George Mihaylov, Chia‐Feng (Jeffrey) Yu, Ralf Zurbruegg*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We examine whether firms that face increased competition are more likely to seek uniformity in the incentive payments made to top management teams (TMTs). Motivated by social comparison theory, we conjecture that variation in executive incentive payments will reduce as a strategic response to encourage TMT cooperation. We test this hypothesis by examining how TMT incentive dispersion changes following exogenous product market competition shocks from reduced tariff cuts. Matched difference-in-differences regressions on a large sample of manufacturing firms between 1992 and 2019 support our prediction. Firms experiencing large tariff cuts are associated with both lower total- and equity-incentive dispersion. This effect is stronger for firms with more powerful CEOs, suggesting that CEOs are a key channel for implementing the strategic use of TMT incentives in firms facing external competition.

Original languageEnglish
Article number114045
JournalJournal of Business Research
Volume165
DOIs
Publication statusPublished - Oct 2023

Keywords

  • CEO-TMT pay gap
  • Competition
  • Incentive dispersion
  • Social comparison theory
  • TMT compensation

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