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Globalization and the Provision of Incentives inside the Firm: The Effect of Foreign Competition

  • Vicente Cuñat
  • Maria Guadalupe

This article studies the effect of changes in foreign competition on the structure of compensation and incentives of U.S. executives. We find that import penetration (instrumented with exchange rates and tariffs) leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it increases within-firm pay differentials between executive levels, with CEOs typically experiencing the largest wage increases. Finally, higher foreign competition is also associated with a higher demand for talent. These results suggest that increased foreign competition can explain some of the recent trends in compensation structures. (c) 2009 by The University of Chicago. All rights reserved.

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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 27 (2009)
Issue (Month): 2 (04)
Pages: 179-212

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Handle: RePEc:ucp:jlabec:v:27:y:2009:i:2:p:179-212
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