We study the determinants and effects of the relative compensation of top executives and lower-level employees. First, we show that CEO–employee pay ratio depends on the balance of power between the CEO (relative to the board) and ordinary employees (relative to management). Second, our...

We investigate simultaneously the impact of promotion-based tournament incentives for VPs and equity-based (alignment) incentives for VPs and the chief executive officer (CEO) on firm performance. We find that tournament incentives, as measured by the pay differential between the CEO and VPs,...

We develop a model to show how agency conflicts, free rider effects and monitoring costs interact to affect optimal team size and workers' incentive contracts. Team size increases with project risk, decreases with profitability, and decreases with monitoring costs as a proportion of output. Our...