A Job Ladder Model of Executive Compensation

Bo Hu

Review of Economic Dynamics, 2025, vol. 55

Abstract: This paper examines the impact of managerial labor market competition on executive incentive contracts. I develop a dynamic contracting model that incorporates moral hazard, search frictions, and poaching offers. The model generates a job ladder along which executives can either use outside offers to renegotiate with the current firm or transition to outside firms. I show that poaching offers generate a new source of incentives, which explains a novel empirical finding whereby larger firms give executives a higher proportion of incentive compensation. (Copyright: Elsevier)

Keywords: Executive Compensation; Managerial Labor Market; Dynamic Moral Hazard; Search Frictions; Firm-size Incentive Premium (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1016/j.red.2024.101257

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