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Managerial pay adjustments: Decomposition and impact on firm productive efficiency

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  • Chen, Ming-Yuan
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    Abstract

    This paper decomposes managerial pay adjustments and examines their impact on firm productivity based upon Taiwanese firm panel data. Pay adjustments are decomposed into components arising from three sources: a scheme based on the external labour market comparisons, a scheme derived from the changes in firm and manager characteristics, and transitory pay adjustments. The stochastic frontier model is used to test how these pay components affect firm productivity. Empirical results suggest that the pay adjustments based on the comparison between managers' actual pay and their market-clearing pay are positively related to the output and technical efficiency of the firms, whereas this productivity-boosting effect cannot be seen for other components. This paper shows the importance of the external labour market in connecting managerial pay to firm productivity, and provides a model for the research of managerial pay in an environment where the compensation structure does not have apparent stock incentives.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 27 (2010)
    Issue (Month): 1 (January)
    Pages: 196-207

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    Handle: RePEc:eee:ecmode:v:27:y:2010:i:1:p:196-207

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: Managerial pay adjustments External labour market Stochastic frontier model;

    References

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    Cited by:
    1. Kim, Hwa-Sung, 2013. "Executive bonus compensation when abnormal earnings and the state of the economy are correlated," Economic Modelling, Elsevier, vol. 32(C), pages 58-65.

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