Executive Pay in Japan: The Role of Bank-Appointed Monitors and the Main Bank Relationship

Naohito Abe, Gaston Noel and Katsuyuki Kubo

No 2001-10, CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University

Abstract: The tournament model has the feature that executive compensation depends on the wages paid to workers at lower levels of the corporate hierarchy. The agency model shows that compensation based on firm performance is a means by which incentives can be provided to executives once a promotion tournament has been resolved. In this paper, we combine aspects of both models and show that the existence of an outsider who monitors the firm's activities will lower the sensitivity of pay to firm performance for top executives and reduce the importance of tournament-based incentives. Using panel data for 56 Japanese electronics firms, we find support for the notion that bank-appointed Board members help monitor top executives and that tournament considerations are a particularly important feature of executive compensation in Japan.

Keywords: Executive pay; tournaments; agency; monitoring; main bank relationship (search for similar items in EconPapers)
JEL-codes: J33 G30 J44 L63 (search for similar items in EconPapers)
Date: 2001-09
Note: September 10, 2001
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Journal Article: Executive pay in Japan: the role of bank-appointed monitors and the Main Bank relationship (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:hit:hitcei:2001-10

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