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A Job Ladder Model of Executive Compensation

Author

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  • Bo Hu

    (Fudan University)

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)

Suggested Citation

  • Bo Hu, 2025. "A Job Ladder Model of Executive Compensation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 55, January.
    • Handle: RePEc:red:issued:24-41
    DOI: 10.1016/j.red.2024.101257
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