Recent thinking has emphasized the importance of consistency in a firm?s compensation policy. By starting from Williamson?s ideas about idiosyncratic exchange, this view can be supplied with some theoretical foundation. At the same time, the consistency view can be applied to a number of...

Recent thinking has emphasized the importance of consistency in a firm's compensation policy. By starting from Williamson's ideas about idiosyncratic exchange, this view can be supplied with some theoretical foundation. At the same time, the consistency view can be applied to a number of...

We model and empirically assess industry tournament incentives for CEOs. The measures we develop for the tournament prize derive from the compensation gap between the CEO at her firm and the highest-paid CEO among similar competing firms. The model predicts that firm performance and risk...

This paper builds on Rosen (1981) and Hvide (2002) to provide a simple framework that elucidates the nature of incentives in the tournaments among top executives in both the external managerial labor market for the top executive positions in other companies and within the executives' own firm...

We present robust evidence that firms enlarge the executive pay gap when executive mobility is constrained by the enhanced enforceability of non-compete agreements. We interpret this finding as evidence that firms increase tournament incentives to keep executives incentivized after the loss of...

Using the pay gap between a firm’s CEO and the highest-paid CEO among similar competing firms to conceptualize the prize of winning external promotion tournaments, we document a positive relationship between external tournament incentives (ETIs) and IPO underpricing – a proxy of the cost of...

Classic financial agency theory recommends compensation through stock options rather than shares to induce risk neutrality in otherwise risk averse agents. In an experiment, we find that subjects acting as executives do also take risks that are excessive from the perspective of shareholders if...

Awards in the form of orders, medals, decorations and titles are ubiquitous in monarchies and republics, private organizations, not-for-profit and profit-oriented firms. Nevertheless, economists have disregarded this kind of non-material extrinsic incentive. The demand for awards relies on an...

This paper compares benefits and costs related to hierarchical and decentralized organizations in an agency framework. We show that the relative efficiency of hierarchy diminishes in contexts with asymmetric information. When effort is not observable, a performance-related pay is required in...

The motivation crowding effect suggests that an external intervention via monetary incentives or punishments may undermine (and under different indentifiable conditions strengthen) intrinsic motivation. As of today, the theoretical possibility of crowding effects is widely accepted among...