Tournament theory and its relevance to executive pay pdf

Posted on Wednesday, May 12, 2021 11:43:30 PM Posted by Brenda F. - 13.05.2021 and pdf, pdf free download 1 Comments

tournament theory and its relevance to executive pay pdf

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With the dynamic development of market economy, the pay gaps in the diversified jobs are widening gradually and have become a center of attraction for academia and corporate world. However, the views of the academic community regarding economic consequences of pay gap within the firms have not been unified yet, and they have consequently developed two unique theories: tournament theory and behavior theory.

Tournament Theory and its Relevance to Executive Pay

In this study, we examine a compensation element that has not received so far considerable research attention—the dispersion of compensation across managers—and its impact on firm performance. We examine the implications of two theoretical models dealing with pay dispersion—tournament versus equity fairness. Tournament theory stipulates that a large pay dispersion provides strong incentives to highly qualified managers, leading to higher efforts and improved enterprise performance, while arguments for equity fairness suggest that greater pay dispersion increases envy and dysfunctional behavior among team members, adversely affecting performance. We also document that the positive association between firm performance and pay dispersion is stronger in firms with high agency costs related to managerial discretion. Furthermore, effective corporate governance, especially high board independence, strengthens the positive association between firm performance and pay dispersion. Our findings thus add to the compensation literature a potentially important dimension: managerial pay dispersion. This is a preview of subscription content, access via your institution.

To browse Academia. Skip to main content. By using our site, you agree to our collection of information through the use of cookies. To learn more, view our Privacy Policy. Log In Sign Up. Download Free PDF. Jordan Otten.

From its very beginnings, BRQ provides widespread coverage of high quality research in a broad range of topics such as human resource management, organization theory, strategic management, corporate governance, managerial economics, marketing, finance, accounting and operations management. It is therefore a multidisciplinary journal inspired by diversity and open to methodological plurality. Our main concern is that articles have strong theoretical foundations, meet the highest analytical standards, and provide new insights that contribute to the better understanding of managerial phenomena. The Impact Factor measures the average number of citations received in a particular year by papers published in the journal during the two receding years. It may be surprising that one of the most popular compensation schemes in business is so open to being hacked — to having managers cheat to win. We explore tournament theory to detail its vulnerabilities to various forms of cheating unilateral and multilateral. We identify who is most likely to be involved and under what conditions.

Executive pay dispersion, corporate governance, and firm performance

In this chapter, we address three pay for performance PFP questions. First, what are the conceptual mechanisms by which PFP influences performance? Second, what programs do organizations use to implement PFP and what is the empirical evidence on their effectiveness? Third, what perils and pitfalls arise on the way from PFP theory to its execution in organizations? We address these questions in general terms, but also highlight unique issues that arise in PFP for teams and for executives. For example, strengthening PFP links can generate powerful motivation effects, but sometimes these are in unintended and unanticipated directions, resulting in undesirable effects. In the realm of executive pay, we question the current conventional wisdom in the management literature that there is little or no PFP.

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Tournament theory is the theory in personnel economics used to describe certain situations where wage differences are based not on marginal productivity but instead upon relative differences between the individuals. The theory has been applied to professional sports and to the practice of law. Tournament theory also was applied to writing - one writer may be fractionally better at writing than another and therefore have a better book , but because people allocate small amounts of time to reading, the writer with the marginally better book will sell far more copies.

Jing Chen jing2. In this paper, we test two models of executive pay that have not received much attention in research on Chinese listed companies: managerial power theory and tournament theory. We also find that executive directors' organization level as reflected in executive pay level for each of the three highest paid executives is positively related to executive remuneration and the relationship is convex, and negatively related to the interaction between executive directors' organization level and government ownership. Tournament prize executive pay is not related to the number of contestants in the tournament and is negatively related to the interaction term between number of contestants and government ownership.

This study explores a relatively new source of Australian executive pay information disclosed in published Annual Reports since It offers not only a different source from which to compare the results of US studies, but also an extension of the studies through the additional Australian disclosure requirements. The first section of the paper examines four possible determinants of Australian executive remuneration, accounting rates of return, firm size, industry and executive control through share holding.

tournament theory

Managerial power theory, tournament theory, and executive pay in China

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This assignment deals with the issue of tournament theory and will give an insight in its theoretical background and its relevance to executive pay. Moreover, the following pages will display the impacts of the tournament theory on organizations and its employees within a business context. The issue of Tournament Theory, which was first mentioned by Edward Lazear and Sherwin Rosen in Shen, Gentry and Tosi , ; Norton , 36 , is related to a special CEO and executive compensation structure that rather focuses on a reward system than on absolute performance compensation to the subject.



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