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Executive compensation and product market competition

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  • Cuñat, Vicente
  • Guadalupe, Maria

Abstract

The aim of this paper is to study the effects of product market competition on the explicit compensation packages that firms offer to their executives. In order to measure the net effect of competition we use two different identification strategies. The first exploits cross sectoral variation in concentration ratios and the panel nature of the dataset. The second uses as a quasi-natural experiment the deregulations that occurred in the banking and financial sectors in the nineties and estimates differences in differences coefficients. Our results show that a higher level of product market competition increases the performance pay sensitivity of executive compensation schemes, and they hold through a number of performance measures such as stock options or bonus. The results are robust to a number of specification checks.

Suggested Citation

  • Cuñat, Vicente & Guadalupe, Maria, 2004. "Executive compensation and product market competition," LSE Research Online Documents on Economics 19985, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:19985
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    File URL: http://eprints.lse.ac.uk/19985/
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    References listed on IDEAS

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    Cited by:

    1. Maria Guadalupe, 2007. "Product Market Competition, Returns to Skill, and Wage Inequality," Journal of Labor Economics, University of Chicago Press, vol. 25(3), pages 439-474.

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    More about this item

    Keywords

    Executive compensation; product market competition; performance related pay;
    All these keywords.

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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