Job Matching, Competition and Managerial Incentives

When a manager’s principal task is to organize production more efficiently, the intensity of the product market competition is crucial in determining the nature of firm-manager matching as well as the structure of managerial incentive. The firm-manager market is modeled as a two-sided matching game. If greater competition leads to increasing (decreasing) returns to cost-reduction, then a firm that faces more intense competition employs a manager with higher (lower) wealth, offers higher (lower) bonus and compensation, and has lower (higher) managerial slack. We further analyze the effects of entry on equilibrium matching and executive compensation.