Performance Incentives within Firms: The Effect of Managerial Responsibility
We show that top management incentives vary by responsibility. For oversight executives, pay-performance incentives are $1.22 per thousand dollar increase in shareholder wealth higher than for divisional executives. For CEOs, incentives are $5.65 higher than for divisional executives. Incentives for the median top management team are substantial at $32.32. CEOs account for 42 to 58 percent of aggregate team incentives. For divisional executives, the pay-"divisional" performance sensitivity is positive and increasing in the precision of divisional performance and the pay-"firm" performance sensitivity is decreasing in the precision of divisional performance. These results support principal-agent models with multiple signals of managerial effort. Copyright (c) 2003 by the American Finance Association.
Year of publication: |
2003
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Authors: | Aggarwal, Rajesh K. ; Samwick, Andrew A. |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 58.2003, 4, p. 1613-1650
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Publisher: |
American Finance Association - AFA |
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