Political Promotion, CEO Incentives, and the Relationship between Pay and Performance

Jerry Cao, Michael Lemmon, Xiaofei Pan, Meijun Qian and Gary Tian
Additional contact information
Jerry Cao: Singapore Management University
Michael Lemmon: University of UT
Gary Tian: University of Wollongong

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: We examine how incentives for political promotion affect compensation policy and firm performance in Chinese state-owned enterprises (SOEs). In contrast to the conventional wisdom that political incentives tend to be misaligned with value maximization, we find that the likelihood that the CEO receives a political promotion is positively related to firm performance. In addition, as predicted by models of career concerns (Baker, Gibbons, and Murphy (1987)) we find that CEOs with a higher likelihood of political promotion have lower pay levels and lower sensitivity of pay to performance. Overall, the evidence suggests that competition in the political job market helps mitigate weak monetary incentives for CEOs in China. Moreover, the Chinese example suggests that state control and political connections are not necessarily inconsistent with good economic incentives.

JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2011-10
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Citations: View citations in EconPapers (7)

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Journal Article: Political Promotion, CEO Incentives, and the Relationship Between Pay and Performance (2019)
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