Pay-performance sensitivity and firm size: Insights from the mutual fund industry
I examine the ex ante decision to make an agent's pay-performance sensitivity an inverse function of organization size. I focus on mutual funds and their decision to use compensation contracts that reduce the advisor's marginal compensation as the fund grows (a declining-rate contract) over the dominant contract type, where marginal compensation is unrelated to fund size (a single-rate contract). I find evidence consistent with the view that declining-rate contracts are a mechanism to keep marginal compensation in line with the advisor's declining marginal product. Specifically, I find that funds with greater exposure to diseconomies of scale are more likely to use a declining-rate contract and to specify a greater amount of compensation decline in their contracts. Consistent with optimal contracting, I find no evidence of a performance difference between funds with declining-rate contracts and funds with single-rate contracts.
Year of publication: |
2010
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Authors: | Cashman, George D. |
Published in: |
Journal of Corporate Finance. - Elsevier, ISSN 0929-1199. - Vol. 16.2010, 4, p. 400-412
|
Publisher: |
Elsevier |
Subject: | Compensation Pay-performance sensitivity Mutual funds |
Saved in:
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