IDEAS home Printed from https://ideas.repec.org/a/sae/ilrrev/v43y1990i3p52-s-73-s.html
   My bibliography  Save this article

Does Performance-Based Managerial Compensation Affect Corporate Performance?

Author

Listed:
  • John M. Abowd

Abstract

The author, using 1981–86 data on more than 16,000 managers at 250 large corporations, investigates whether the sensitivity of managerial compensation to corporate performance in one year is positively related to corporate performance in the next year. Accounting-based measures of performance yield only weak evidence of such an association, but economic and market measures yield stronger evidence. Payment of an incremental 10% bonus for good economic performance is associated with a 30 to 90 basis point increase in the expected after-tax gross economic return in the following fiscal year; and payment of an incremental raise of 10% following a good stock market performance is associated with a 400 to 1200 basis point increase in expected total shareholder return.

Suggested Citation

  • John M. Abowd, 1990. "Does Performance-Based Managerial Compensation Affect Corporate Performance?," ILR Review, Cornell University, ILR School, vol. 43(3), pages 52, April.
  • Handle: RePEc:sae:ilrrev:v:43:y:1990:i:3:p:52-s-73-s
    as

    Download full text from publisher

    File URL: http://ilr.sagepub.com/content/43/3/52-S.abstract
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Benno Torgler & Markus Schaffner & Bruno S. Frey & Sascha L. Schmidt, 2008. "Looking Awkward When Winning and Foolish When Losing: Inequity Aversion and Performance in the Field," IEW - Working Papers 369, Institute for Empirical Research in Economics - University of Zurich.
    2. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    3. Núñez-Nickel, Manuel & Cano Rodríguez, Manuel, 2002. "Las tres caras del riesgo estratégico: riesgo sistemático, riesgo táctico y riesgo idiosincrásico," DEE - Documentos de Trabajo. Economía de la Empresa. DB db021508, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    4. Torgler, Benno & Schmidt, Sascha L & Frey, Bruno S., 2006. "The Power of Positional Concerns: A Panel Analysis," Berkeley Olin Program in Law & Economics, Working Paper Series qt1z14v7zt, Berkeley Olin Program in Law & Economics.
    5. Bruno Jullien & Bernard Salanié & François Salanié, 2000. "Screening Risk-Averse Agents Under Moral Hazard," Working Papers 2000-41, Center for Research in Economics and Statistics.
    6. Cano Rodríguez, Manuel & Núñez-Nickel, Manuel, 2002. "Is the risk-return paradox still alive?," DEE - Working Papers. Business Economics. WB wb024818, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    7. repec:eee:ijoais:v:14:y:2013:i:4:p:321-348 is not listed on IDEAS
    8. Benno Torgler & Sascha L. Schmidt & Bruno S. Frey, 2006. "Relative Income Position and Performance: An Empirical Panel Analysis," CREMA Working Paper Series 2006-03, Center for Research in Economics, Management and the Arts (CREMA).
    9. Benno Torgler & Markus Schaffner & Bruno S. Frey & Sascha L. Schmidt & Uwe Dulleck, 2008. "Inequality Aversion and Performance in and on the Field," NCER Working Paper Series 36, National Centre for Econometric Research.
    10. Aidan R. Vining, 2003. "Internal Market Failure: A Framework for Diagnosing Firm Inefficiency," Journal of Management Studies, Wiley Blackwell, vol. 40(2), pages 431-457, March.
    11. David Nash, 2003. "Determinants of the use of financial incentives in investment banking," Working Papers wp256, Centre for Business Research, University of Cambridge.
    12. Benno Torgler & Justina A.V. Fischer, 2006. "Does Envy Destroy Social Fundamentals? The Impact of Relative Income Position on Social Capital," Working Papers 2006.38, Fondazione Eni Enrico Mattei.
    13. Lazear, Edward P, 1997. "Incentives in Basic Research," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 167-197, January.
    14. John M. Abowd & David S. Kaplan, 1999. "Executive Compensation: Six Questions That Need Answering," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 145-168, Fall.
    15. Kevin J. Stiroh, 2007. "Playing For Keeps: Pay And Performance In The Nba," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 145-161, January.
    16. repec:bla:afrdev:v:29:y:2017:i:3:p:429-445 is not listed on IDEAS
    17. Canice Prendergast, 1996. "What Happens Within Firms? A Survey of Empirical Evidence on Compensation Policies," NBER Working Papers 5802, National Bureau of Economic Research, Inc.
    18. Rajiv D. Banker & Danlu Bu & Mihir N. Mehta, 2016. "Pay Gap and Performance in China," Abacus, Accounting Foundation, University of Sydney, vol. 52(3), pages 501-531, September.
    19. repec:eee:labchp:v:3:y:1999:i:pb:p:2485-2563 is not listed on IDEAS
    20. Robert Gibbons, 1996. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc.
    21. Mahmoud Nourayi & Sudha Krishnan, 2006. "The impact of incentives on CEO compensation and firm performance," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 53(3), pages 402-420, September.
    22. Núñez-Nickel, Manuel & Cano Rodríguez, Manuel, 2002. "Comportamiento heterocedástico entre rentabilidad y riesgo," DEE - Documentos de Trabajo. Economía de la Empresa. DB db021710, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.

    More about this item

    Statistics

    Access and download statistics

    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:sae:ilrrev:v:43:y:1990:i:3:p:52-s-73-s. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (SAGE Publications). General contact details of provider: http://www.ilr.cornell.edu .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.