How Does Product Market Competition Shape Incentive Contracts?

Vicente Cuñat () and Maria Guadalupe ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: This paper studies the effect of product market competition on the explicitcompensation packages that firms offer to their CEOs, executives and workers. We use a largesample of both traded and non-traded UK firms and exploit a quasi-natural experimentassociated to an increase in competition. The sudden appreciation of the pound in 1996implied different changes in competition for sectors with different degrees of openness. Ourdifference in differences estimates show that a higher level of product market competitionincreases the performance pay sensitivity of compensation schemes, in particular forexecutives.

Keywords: Performance-related pay; Product market competition (search for similar items in EconPapers)
JEL-codes: J32 J33 M12 J41 J49 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-com
Date: Written
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Journal Article: How Does Product Market Competition Shape Incentive Contracts? (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0687

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