Compensation, Turnover, and Top Management Incentives : Historical Evidence

We find that the rate of top management turnover and the sensitivity of turnover to stock returns for a sample of large industrial firms from 1933 to 1941 was significantly smaller than estimates reported for modern panels. We present evidence that management compensation has become more sensitive to firm performance since the 1930s. In contrast to the conclusions of Jensen and Murphy (1990) and others, our findings indicate that management incentives under control of the board have become stronger rather than weaker over the past half century. These findings are consistent with internal and external control mechanisms functioning as complements