IDEAS home Printed from https://ideas.repec.org/a/eee/jbrese/v197y2025ics0148296325002760.html
   My bibliography  Save this article

CEO–TMT vertical pay gap and firm productivity: A tournament theory perspective

Author

Listed:
  • Xu, Le
  • Ponnapalli, Ajay Rama
  • Wang, Chen

Abstract

Does the pay gap between the CEO and TMT members influence how firms perform? For long, this question has been of scholarly interest yet prior research exploring it has largely yielded equivocal findings. One possible reason for this is the way firm performance is traditionally operationalized. Addressing past equivocal findings, we instead examine the influence of the CEO–TMT vertical pay gap on firm productivity, which is a more immediate reflection of TMT members’ effort that is motivated by the CEO–TMT vertical pay gap. Drawing on tournament theory, we theorize that a greater CEO–TMT vertical pay gap will lead to higher firm productivity. We also explore boundary conditions around this relationship by examining the influence of external and internal promotional opportunities for TMT members. Specifically, we contend that this positive relationship will be stronger when firms are headquartered in states with high noncompete enforceability (i.e., when TMT members have fewer external opportunities to be promoted to CEO) and weaker when firms have heirs apparent (i.e., TMT members have fewer internal opportunities to being promoted to CEO). Using data from 1,811 US public firms from 1993 to 2012, we find broad support for our hypotheses. Our study advances scholarly understanding of tournament incentives in the form of the CEO–TMT vertical pay gap and provides practical implications on how boards of directors can incorporate tournament incentives into the design of executive compensation.

Suggested Citation

  • Xu, Le & Ponnapalli, Ajay Rama & Wang, Chen, 2025. "CEO–TMT vertical pay gap and firm productivity: A tournament theory perspective," Journal of Business Research, Elsevier, vol. 197(C).
    • Handle: RePEc:eee:jbrese:v:197:y:2025:i:c:s0148296325002760
    DOI: 10.1016/j.jbusres.2025.115453
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0148296325002760
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbusres.2025.115453?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbrese:v:197:y:2025:i:c:s0148296325002760. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbusres .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.