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Executive Compensation and Product Market Competition

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  • Vicente Cuñat
  • María Guadalupe

Abstract

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

Suggested Citation

  • Vicente Cuñat & María Guadalupe, 2004. "Executive Compensation and Product Market Competition," CEP Discussion Papers dp0617, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0617
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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
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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