compensation and span of control in hierarchical organizations this article presents evidence on the relationship between compensation ratios and spans of control within hierarchical organizations we find that compensation ratios are lower than span of control at any position within the hierarchy which is consistent with an elasticity of compensation to a number of subordinates lower than one managers human capital endowments determine a significant part of the salary differences throughout hierarchical levels as predicted by models of talent allocation in hierarchies differences in the size of firms should be attributed more to differences in their number of hierarchical levels than to variations in the span of control

discussion of incentives for accruing costs and efficiency in regulated monopolies subject to roe constraint the paper incentives for accruing costs and efficiency in regulated monopolies subject to roe constraint investigates the implicit contracts that are used to compensate executives in the electric utility industry the conference discussion of this paper centered on the economics underlying the contracting issues investigated as well as the research design and econometric approach discussion related to the underlying economics is organized below under the following topics 1 the economics of electric utility regulation which determines the nature of the contract between the regulators and the firm and 2 the structure of compensation schemes in the electric utility industry i e the nature of the implicit contract between shareholders and managers of electric utilities questions raised about the research design and econometric approach are subdivided as follows 3 design questions including potential problems with the time period selected and the paper s crosssectional approach 4 operational definitions of constructs used e g measures of efficiency and 5 econometric issues especially those related to the estimation of cost versus production functions

asymmetric benchmarking in compensation executives are rewarded for good luck but not penalized for bad abstract principal agent theory suggests that a manager should be paid relative to a benchmark that removes the effect of market or sector performance on the firm s own performance recently it has been argued that such indexation is not observed in the data because executives can set pay in their own interests that is they can enjoy pay for luck as well as pay for performance we first show that this argument is incomplete the positive expected return on stock markets reflects compensation for bearing systematic risk if executives pay is tied to market movements they can only expect to receive the market determined return for risk bearing this argument however assumes that executive pay is tied to bad luck as well as to good luck if executives can truly influence the setting of their pay they will seek to have their performance benchmarked only when it is in their interest namely when the benchmark has fallen using industry benchmarks we find significantly less pay for luck when luck is down in which case pay for luck would reduce compensation than when it is up these empirical results are robust to a variety of alternative hypotheses and robustness checks and they suggest that the average executive loses 25 45 less pay from bad luck than is gained from good luck

a multiplicative model of optimal ceo incentives in market equilibrium this paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium by embedding a moral hazard problem into a talent assignment model by considering multiplicative specifications for the ceo s utility and production functions we generate a number of different results from traditional additive models first both the ceo s low fractional ownership the jensen murphy incentives measure and its negative relationship with firm size can be quantitatively reconciled with optimal contracting and thus need not reflect rent extraction second the dollar change in wealth for a percentage change in firm value divided by annual pay is independent of firm size and therefore a desirable empirical measure of incentives third incentive pay is effective at solving agency problems with multiplicative impacts on firm value such as strategy choice however additive issues such as perk consumption are best addressed through direct monitoring jel d2 d3 g34 j3

agents with and without principals who sets ceo pay our standard answer to this question has been shaped by principal agent theory shareholders set ceo pay they use pay to limit the moral hazard problem caused by the low ownership stakes of ceos through bonuses options or long term contracts shareholders can motivate the ceo to maximize firm wealth in other words shareholders use pay to provide incentives a view we refer to as the contracting view an alternative view championed by practitioners such as crystal 1991 argues that ceos set their own pay they manipulate the compensation committee and hence the pay process itself to pay themselves what they can the only constraints they face may be the availability of funds or more general fears such as not wanting to be singled out in the wall street journal as being overpaid we refer to this second view as the skimming view in this paper we investigate the relevance of these two views

food stamp participation among adult only households abstract several recent changes in the food stamp program have been directed toward households without children including new work requirements for able bodied adults without dependents abawds and easier application and recertification procedures for the disabled and the elderly despite their relevance to policy makers adult only households have not been extensively examined we use administrative records from south carolina to investigate how spells of food stamp participation for adult only households vary with abawd provisions recertification intervals and other characteristics we find that households that were subject to abawd policies had shorter spells and lower rates of food stamp participation than other households we also find that households were much more likely to leave the food stamp program at recertification dates than at other dates we further find that time limits were associated with exits with and without earnings suggesting that this policy increased self sufficiency for some households but left others without support

executive compensation strategic competition and relative performance evaluation theory and evidence we examine compensation contracts for managers in imperfectly competitive product markets we show that strategic interactions among firms can explain the lack of relative performance based incentives in which compensation decreases with rival firm performance the need to soften product market competition generates an optimal compensation contract that places a positive weight on both own and rival performance firms in more competitive industries place greater weight on rival firm performance relative to own firm performance we find empirical evidence of a positive sensitivity of compensation to rival firm performance that is increasing in the degree of competition in the industry

managerial bargaining power in the determination of compensation contracts and corporate investment this paper considers the design of managerial compensation contracts and their impact on corporate investment decisions and the managerial effort decision the model relates the compensation scheme to outside share ownership and managerial bargaining position using the methods of mechanism design under asymmetric information a shift in favor of effort is documented in the case where managerial bargaining strength is weak while a shift toward more use of capital investment results from strong managerial bargaining power the model distinguishes managerial equity holdings from contingent compensation contracts our results are related to the empirical literature on pay performance sensitivities

employment bonuses and labor turnover the purpose of this paper is to illustrate how a two part compensation system composed of a rigid base salary and a flexible bonus can reduce turnover it is shown that bonus pay is an effective retention device if it is risk reducing and is correlated with outside contract offers for the first time to the best of our knowledge a model of bonus payments is tested with u s instead of japanese data the empirical results are suggestive of the conditions that give bonuses an important even dominant role in worker retention

does the form of compensation matter abstract the role of fee contracts in the agency relation between investment bankers and client firms in tender offers is investigated using a sample of offers between 1978 and 1986 different fees have different payoff functions which can be used by firms to create incentives and by bankers to signal differences in abilities the effectiveness of fee contracts in resolving agency problems in tested with mixed results the evidence suggests that fee contracts are used as a tool by both firms and bankers and that contracts influence tender offer outcomes but that contracting is only a partial solution to the agency problem

venture capital programmes in the uk and germany in what sense regional policies sunley p klagge b berndt c and martin r 2005 venture capital programmes in the uk and germany in what sense regional policies regional studies 39 255 273 the paper considers how far and in what ways venture capital policies in the uk and germany have been constructed as regional policy interventions it begins by explaining two justifications for adding a regional dimension to venture capital policy and outlines the development of such policy in the two states it explains the contrasting policy regimes and the means of intervention employed despite their marked differences venture capital policies in both states are regionalized to only a limited degree however the uneven regional operations and effects of such policies are likely to produce an unintended regionalization of outcomes that may contradict the aims of closing regional disparities in risk finance and entrepreneurialism

rewards to academia the remuneration of vice chancellors and principals this paper models the financial remuneration to vice chancellors and principals at uk higher education institutions after describing the alternative theoretical underpinnings for the determination of pay an earnings function is estimated utilizing institutional and personal characteristics the model suggests only a partial linkage of managerial and performance related indicators to remuneration levels this suggests substantial scope for reorientation of rewards towards such indicators rather than relying on an efficiency wage this would appear particularly appropriate given the present and continued disclosure of this information together with the increased focus on performance indicators relating to teaching and research within the uk higher education sector

incentives learning and compensation a theoretical and empirical investigation of managerial labor contracts this article analyzes properties and implications of multiperiod managerial labor contracts under two alternative hypotheses incentives in which productivity depends on unobservable effort and learning in which ability is unknown and is revealed over time shared and conflicting implications of these competing models are developed in terms of experienceearnings profiles and the relation between compensation and performance i empirically examine these theoretical results by using a longitudinal sample of 1 488 chief executive officers followed from 1974 1985 the data yield mixed evidence that generally supports the learning hypothesis over the incentive hypothesis

if at first you don t succeed applying for and staying on the supplemental nutrition assistance program we examine households applications to and participation in the supplemental nutrition assistance program using administrative records from south carolina we model application resolutions with multinomial logit mnl specifications where the possible outcomes are acceptance denial due to income ineligibility denial due to a failure to provide sufficient information and denial due to other reasons for cases with successful applications we model the durations of participation spells using competing risk hazard specifications that distinguish among exits that result from missed recertifications financial ineligibility incomplete or missing information and other reasons the application and hazard outcomes depend on past programme behaviour and observed characteristics the results indicate that a household s application and participation history affect its subsequent application success and programme tenure

why are german employers associations declining arguments and evidence considerable progress has been made during the past two decades in conceptualizing dynamics within german employers associations in particular explanations for declines in density and the impact on the economy the verification has not kept pace with theorization however this article provides empirics the analysis confirms earlier conclusions that the interests of large and small employers have increasingly diverged since the mid 1980s in contrast to the conventional wisdom however the authors find that organized labor has not contributed to the cost pressures that have prompted many smalland medium sized enterprises to leave employers associations the article also explores employers associations response to a more challenging environment in light of the varieties of capitalism literature the decision of several german employers associations to offer different classes of membership has qualitatively expanded subnational variety within the german variety of capitalism

the growth of executive pay this paper examines both empirically and theoretically the growth of us executive pay during the period 1993 2003 during this period pay has grown much beyond the increase that could be explained by changes in firm size performance and industry classification had the relationship of compensation to size performance and industry classification remained the same in 2003 as it was in 1993 mean compensation in 2003 would have been only about half of its actual size during the 1993 2003 period equity based compensation has increased considerably in both new economy and old economy firms but this growth has not been accompanied by a substitution effect i e a reduction in non equity compensation the aggregate compensation paid by public companies to their top five executives during the considered period added up to about 350 billion and the ratio of this aggregate top five compensation to the aggregate earnings of these firms increased from 5 per cent in 1993 5 to about 10 per cent in 2001 3 after presenting evidence about the growth of pay we discuss alternative explanations for it we examine how this growth could be explained under either the arm s length bargaining model of executive compensation or the managerial power model among other things we discuss the relevance of the parallel rise in market capitalizations and in the use of equity based compensation copyright 2005 oxford university press

an analysis of the use of accounting and market measures of performance in executive compensation contracts prior research has provided useful insights into the structure of compensation plans and their incentive effects however one important limitation of these studies is the virtual absence of any cross sectional analyses of the attributes of compensation contracts 2 this absence is related in part to the problems associated with controlling for other factors that affect compensation that is compensation contracts are

food stamp caseloads over the business cycle 1 introduction the onset of the current economic downturn following the longest expansion in u s history has renewed interest in the role of automatic stabilizers designed to insure households against negative cyclical income shocks this system of income and consumption stabilizers includes among others the individual income tax and the panoply of social insurance programs such as unemployment insurance and the food stamp program while the income tax and unemployment insurance have received recent attention gruber 1997 auerbach and feenberg 2000 kniesner and ziliak 2002a b little is known about the role of food stamps as an automatic stabilizer even though the program served over 27 million americans at its peak in 1994 this gap in the literature is particularly acute in light of passage of the personal responsibility and work opportunity reconciliation act of 1996 welfare reform act which introduced new rules on cash assistance recipients and thus the nearly half of food stamp recipients who also receive cash welfare moreover the 1996 welfare reform also had a direct administrative effect on the food stamp program by ending the eligibility of some recipients reducing average benefit levels and requiring states to replace paper coupons with electronic benefit transfer cards importantly the welfare reform act also eliminated the entitlement status of the main cash welfare program aid to families with dependent children afdc thus positioning food stamps as a more prominent countercyclical consumption stabilizer a first task in assessing the possible stabilization role of food stamps in the era of welfare reform is to identify the cyclical sensitivity of food stamp caseloads if food stamp caseloads are acyclical then we would expect no role for food stamps in smoothing consumption over the business cycle if however food stamp caseloads are highly cyclical then food stamps may function as an important antirecessionary tool by the same token the new welfare policies may independently affect food stamp caseload movements and interact with the business cycle thereby altering the possible stabilization role of the program in this paper we specify a dynamic model of food stamp caseloads to estimate the responsiveness of the caseload to the business cycle to welfare policies and to interactions between the business cycle and welfare policies unlike cash welfare there has been scant research on the cyclicality of food stamp caseloads 1 wallace and blank 1999 are a recent exception in their use of both static annual and dynamic monthly food stamp caseload models based on state level panel data for the 1980 to 1998 federal fiscal years with annual data food stamp caseloads were strongly countercyclical and reform of afdc led to weak declines in total caseloads 2 specifically they attribute up to 44 of the 1994 to 1998 food stamp caseload decline to economic conditions and about 6 of the decline to welfare reform they reach broadly similar conclusions with monthly data however wallace and blank calculate that upward of 85 of the post 1996 decline in food stamp caseloads can be attributed to welfare reform if one is willing to ascribe all the unexplained residual to welfare reform which as the authors note is undoubtedly an overestimate of welfare reform s effect on food stamp caseloads p 85 in their static models figlio gundersen and ziliak 2000 reached conclusions similar to wallace and blank s estimates with annual level data in their preferred dynamic models they attribute about 35 of the 1994 to 1998 caseload decline to the macroeconomy and virtually nothing to welfare reform we improve on this previous research on food stamp caseloads along several dimensions first we not only follow other research in estimating the impact of afdc policy changes on food stamp caseloads but also examine the impact of policies that are focused directly on food stamps

bringing capital back in or social democracy reconsidered employer power cross class alliances and centralization of industrial relations in denmark and sweden the political domination of social democrats in denmark and sweden beginning in the 1930s was stabilized by the absence of intense opposition by capital to reformist programs aggressively opposed by business and the right elsewhere in the world this quiescence was not a symptom of weakness or dependency rather it was a product of a class intersecting cross class alliance behind institutions of centralized industrial relations that served mutual interests of sectoral groupings dominating both union and employer confederations well organized and militant and backed by social democrats employers in the two countries used offensive multi industry lockouts to force centralization on reluctant unions analysis of these cross class alliances and their pay distributional objectives is used to challenge a widely held view that centralization and social democratic electoral strength are sources of power against capital it also occasions a reassessment of conventional understandings of farmer labor coalitions and the decline of industrial conflict in scandinavia in the 1930s according to the alternative view presented here capital was included rather than excluded from these cross class alliances and industrial conflict subsided dramatically in part because employers achieved politically what they had previously tried to achieve with the lockout

still a coordinated model market liberalization and the transformation of employment relations in the german telecommunications industry this paper examines recent changes in collective bargaining and employer strategies in the german telecommunications industry following market liberalization in the late 1990s germany s distinctive co determination and vocational training institutions encouraged large firms to adopt employment systems in technician and call center workplaces that relied on high levels of worker skill and discretion however organizational restructuring is undermining these gains as firms use outsourcing and the creation of subsidiaries to escape or weaken company level collective agreements these trends have substantially weakened unions and contributed to the further disorganization of coordinated bargaining structures findings are based on interviews with union and works council representatives managers and employees at deutsche telekom and its major competitors conducted between 2003 and 2007 as well as secondary analysis of company documents and industry reports

layoffs top executive pay and firm performance this paper examines the connection between layoffs executive pay and stock prices firms that announce layoffs in the previous year pay their ceos more and give their ceos larger percentage raises than firms which do not have at least one layoff announcement in the previous year however the likelihood of announcing a layoff varies dramatically along other dimensions for example firm size which are also correlated with ceo pay once firm specific fixed effects are controlled for the ceo pay premium for laying off workers disappears in addition there is a small negative share price reaction to layoff announcements copyright 1998 by american economic association

business against markets employer resistance to collective bargaining liberalization during the eurozone crisis employer organizations have been presented as strong promoters of the liberalization of industrial relations in europe this article in contrast argues that the preferences of employers vis a vis

uncertainty risk and incentives theory and evidence uncertainty has qualitatively different implications than risk in studying executive incentives we study the interplay between profitability uncertainty and moral hazard where profitability is multiplicative with managerial effort investors who face greater uncertainty desire faster learning and consequently offer higher managerial incentives to induce higher effort from the manager in contrast to the standard negative risk incentive trade off this learning by doing effect generates a positive relation between profitability uncertainty and incentives we document empirical support for this prediction this paper was accepted by wei jiang finance

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

top executive rewards and firm performance a comparison of japan and the united states this paper studies top executive turnover and compensation and their relation to firm performance in the largest japanese and u s companies japanese executive turnover and compensation are related to earnings stock returns and to a lesser extent sales performance measures the fortunes of japanese top executives therefore are positively correlated with stock performance and current cash flows or with factors contributing to such performance the relations for the japanese executives are generally economically and statistically similar to those for their u s counterparts there is some evidence however that the fortunes of japanese executives are more sensitive to low income but less sensitive to stock returns than those of u s executives

optimal incentive contracts in the presence of career concerns theory and evidence this paper studies optimal incentive contracts when workers have career concerns concerns about the effects of current performance on future compensation we show that the optimal compensation contract optimizes total incentives the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers we find empirical support for this prediction in the relation between chief executive compensation and stock market performance

performance fee contract change and mutual fund risk abstract we examine the effect that an exogenously specifically governmentally required change in compensation contract had on a managerial decision we find that a group of mutual funds changed their portfolio risk levels after they were forced to change their performance fee schedules their portfolio risk choices differed predictably from a randomly selected group of nonperformance fee funds and a group of performance fee funds that were not required to change their compensation contracts in addition the affected mutual funds lost both shareholders and assets around the time of the imposition of the restriction while the other funds exhibited little change or gained assets and shareholders

optimal managerial contracts and equilibrium security prices recent developments in economic theory have focused attention on efficient methods for providing incentives within a corporation especially to top management jensen meckling 12 have examined some implications of incentive or agency problems for corporate finance in this paper we combine a simple model of security market equilibrium with that of an optimal managerial incentive contract using results of harris raviv 8 and holmstrom 9 we provide a rationale for including security prices in the managerial incentive contracts of publicly held firms in this model we also show that non systematic diversifiable risks will be considered in the capital budgeting decisions of a managerial firm operated in the interests of its stockholders this is in contrast to the implication of the arbitrage pricing theory a similar result follows from the capital asset pricing model which abstracts from incentive problems and suggests that only systematic risks ought to be considered the optimal contract model of the corporation takes the following view of the firm since decision makers within a firm are not sole owners of the business but employed agents the decisions which they make depend on the incentives which the organization provides these incentives are embodied explicitly in employment contracts and implicitly through the threat of dismissal or effect on reputation the contract whether explicit or not describes the decision maker s anticipation of the consequences to him conditional on various observable outcomes these outcomes are used to provide information useful in determining whether he did his job properly in the simplest optimal contract scenario there is a single principal and a single agent whose decision concerns the level of effort he expends the level of effort affects the level of output of the firm but not unambiguously because the output is also governed by other stochastic elements as a result some information about the agent s level of effort can be inferred

understanding the determinants of managerial ownership and the link between ownership and performance comment abstract himmelberg et al j financial econom 53 1999 353 384 argue that fixed effects estimators should be used in examination of the relationship between managerial ownership and firm performance i show that managerial ownership while substantially different across firms typically changes slowly from year to year within a company with rational managers maximising long term utility small one year changes in ownership are not likely to reflect notable changes in incentives that would lead to substantive within year changes in performance by relying on within variation fixed effects estimators may not detect an effect of ownership on performance even if one exists

wealth and executive compensation using new data on the wealth of swedish ceos i show that higher wealth ceos receive stronger incentives since high wealth excluding own firm holdings implies low absolute risk aversion this is consistent with a risk aversion explanation to examine whether wealth is likely to proxy for power i use lagged wealth typically measured before the ceo was hired and the results remain for one of two incentive measures also the wealth incentive result is not stronger for ceos likely to face limited owner oversight finally wealth is unrelated to pay levels and is hence unlikely to proxy for skill the compensation of chief executives of large listed companies is often largely in the form of risky instruments such as shares and options since share prices are affected by many factors outside management control this exposes ceos to risk according to standard agency theory the risk inherent in incentive compensation should reduce optimal incentives looking across firms the evidence that volatile stock prices reduce incentives in actual compensation has been mixed see e g aggarwal and samwick 1999 core and guay 2001 and prendergast 2002 for different views the importance of risk for incentives is thus in dispute 1 this paper takes another look at ceo incentives exploiting variation in risk aversion rather than risk decreasing absolute risk aversion implies that a wealthy ceo is less risk averse than a similar same coefficient of relative risk aversion but less wealthy ceo wealth should therefore proxy for risk aversion wealth may also be related to ceo skill and power obviously using wealth variation empirically hinges on having adequate data on individual wealth i use swedish tax filings to construct a proxy of wealth in sweden tax authorities provide data on aggregate yearly income

managerial reputation and divisional sell offs a model and empirical test abstract this paper presents a reputation model of divestiture activity that yields a sharp cross sectional implication for event studies of sell off announcements a decision to divest a division that is known to be successful conveys good news about the division in contrast a decision to divest a division that is known for underperformance conveys no news about the division we test these hypotheses on a sample of sell off announcements for which we find stories in the wall street journal unambiguously characterizing the division being sold as either a winner or a loser the stock price reaction to the sell off of losers is indistinguishable from zero while the stock price reaction to the sell off of winners is a statistically significant 2 5 these results are strengthened when we expand the sample to include divisions whose profitability was announced in the company s annual report for this expanded sample the average stock price reaction to the announcements of sell offs of losers remains indistinguishable from zero while returns from the sell offs of winners average a highly significant 3 4

heads i win tails you lose a career analysis of executive pay and corporate performance the paper utilises a novel career perspective to examine managerial theories of organisational control in the context of executive reward principal agent theory managerial power and neo institutionalism are evaluated detailed career histories of boardroom executives in all ftse350 companies between 1996 and 2008 are utilised using both a fixed effects panel and a career based approach rival hypotheses are tested in addition to the payperformance relationship the probability of job loss as a function of performance is also estimated the evidence presented points to the importance of institutional considerations in the standard agency theory and managerial power perspectives and lends support to a social theory of agency the analysis is empirical in nature and an effort is made to draw on qualitative studies to further flesh out the discussion the practical implications of the findings point to the inadequacy of existing arrangements to deliver efficient pay outcomes where performance is poor whilst highlighting dangers of relying on naive policy remedies that ignore the role played by institutional forces in their implementation also highlighted is the distinct advantage of boards adopting a cumulative or career oriented approach when evaluating executive performance from a policy perspective the case is made for truly long term incentives in the form of career shares

market valuation of employee stock options this study investigates whether investors incorporate the value of a firm s outstanding employee stock options into its stock price i estimate the outstanding options value for a sample of firms for which outstanding fixed options exceed 5 of outstanding common shares in 1988 i find a negative correlation between the value of outstanding options and a firm s share price the correlation is stronger i for the option s intrinsic value than for the option s time value ii for options that are later in their vesting stage than earlier in their vesting stage and iii for large firms than for small firms in addition the fasb s method for calculating compensation expense has no explanatory power in the presence of this paper s calculation of the options value

classic promotion tournaments versus market based tournaments as initially formulated in the seminal analysis of lazear and rosen 1981 an important perspective for understanding the role of promotions in firms is the tournament perspective that is a promotion and in particular the wage increase associated with a promotion is a prize that serves as an incentive for workers to exert effort and take other actions beneficial to the firm such as the accumulation of human capital in this paper i consider whether the best way to model promotion tournaments is by having firms commit to prizes ex ante as in lazear and rosen s initial formulation or whether promotion prizes should be modeled as arising from the signaling role of promotions and the competition between firms for promoted workers

the return of lockouts down under in comparative perspective globalization the state and employer militancy virtually unheard of since the great depression lockouts have reemerged strongly in australia and new zealand just as they have all but disappeared in germany the decline of lockouts in germany is convincingly attributed to the enhanced vulnerability of firms to stoppages in certain circumstances amid globalization but the small open economies of australia and new zealand are equally subject to these pressures using macro and micro level data this article illustrates that neoliberal legislative reforms and institutional change have reconfigured the risks costs and payoffs associated with lockouts amid globalization in doing so some flaws in the varieties of capitalism dual convergence literature are highlighted in particular the post hoc classification of the antipodes as liberal market economies bypasses the role of legislative reform in reconstituting employer interests and the differences in electoral party and state structures that impeded facilitated the rise of neoliberal reformers in

playing for keeps pay and performance in the nba i introduction a basic insight of agency theory is that properly designed incentive contracts can align the interests of agents with those of the principal and recent empirical work shows that workers do indeed respond to financial incentives 1 contractual incentives however are not the only force motivating workers workers also have incentives to vary effort at different points of their contract cycle to increase effort just before a new contract is signed to lock in a more lucrative deal and then reduce it after a multi year contract is secured these types of contract related incentives create clear moral hazard problems but have received little empirical attention the motivating hypothesis in this paper is that imperfect information and multi year contracts create an implicit incentive for workers to strategically alter effort over the contract cycle in the year prior to signing the contract their contract year workers may exert above average effort to convince employers that they are high quality and thus raise long term compensation once the contract is signed however workers may exert less effort because wages are effectively independent of contemporaneous performance an empirical difficulty is that this moral hazard may be obscured by two factors a selection effect may lead only high quality workers to receive contracts and career concerns may provide additional incentives and dampen the post contract decline 2 this paper employs a unique dataset for professional basketball players in the national basketball association nba from 1988 to 2002 to examine the contract related incentive effects the data include contract information year signed length of contract and value of contract for every active player in 2000 and performance measures points scored rebounds assists etc throughout each player s career contract related incentive effects are estimated from changes in individual performance over the contract cycle if performance systematically improves just before signing a new contract and falls afterward some of the fluctuation is likely due to contract related incentives i also examine the traditional link between pay and past performance which is necessary for these types of incentives to be relevant the critical advantage of this data is the detailed information on individual performance individual contract status and individual pay 3 in contrast previous work on individual incentives for example lazear 2000 paarsch and shearer 2000 and shearer 2004 studied changes infirmwide compensation plans while the empirical literature on executive pay and performance for example murphy 1985 1986 jensen and murphy 1990 gibbons and murphy 1992 kaplan 1994 and hall and liebman 1998 typically examined the link between individual pay and firm performance the individual level data constructed here have the critical variation across individuals which is needed to identify the impact of these contract related incentive effects the empirical work begins with a test of the link between pay and performance which is necessary for contract related incentives to be operational not surprisingly better performers in the nba are rewarded with higher salaries and longer contracts more relevant to the incentive issue players are strongly rewarded for improvements in performance in their contract year a one point increase in a player s scoring average for example is associated with an annual salary increase of over 300 000 this link provides the crucial motivation for the hypothesis that players will exert additional effort in their contract year to lock in the better contracts that they expect to follow the data then provide strong evidence of contract related incentive effects as overall performance does in fact improve relative to a player s long run average in the contract year and then declines after a long run contract is signed

management and ownership effects evidence from five countries despite the growing recognition in the corporate governance literature that the relationship between ownership concentration and profitability is context dependent this issue has not yet been subjected to direct empirical investigation using a single cross national sample this study empirically examines the ownership concentration performance relationship across the nations of canada france germany the united kingdom and the united states essentially we argue that the correlation if any between ownership concentration and firm profitability differs across countries in a systematic way determined by the national system of corporate governance results indicate that important and statistically significant differences do in fact exist across the countries studied 1998 john wiley sons ltd

regional income stratification in unified germany using a gini decomposition approach frick j r and goebel j regional income stratification in unified germany using a gini decomposition approach regional studies using representative micro data from the german socio economic panel study soep this paper delivers new insights into the development of income inequality and regional stratification in germany after unification this paper applies a new method for detecting social stratification by a decomposition of the gini index that yields the obligatory between and within group components as well as an overlapping index for the different sub populations it is found that east germany is still a stratum on its own when using post government income but since 2001 no longer is when using pre government income these results remain stable when using alternatively defined regional classifications however there are also indications of some regional variation within west germany frick j r et goebel j les tranches de revenu regional dans l allemagne unifiee employant une decompositi

asymmetric treatment of reported pension expense and income amounts in ceo cash compensation calculations abstract we provide evidence that ceo cash compensation is relatively less sensitive to pension expense than pension income suggesting that compensation committees shield ceo cash compensation from pension expense amounts we also provide evidence that managers use relatively higher expected rate of return estimates when reporting pension income suggesting that managers select income increasing accounting estimates in response to compensation committees greater emphasis on pension income in ceo cash compensation determinations pension cost amounts represent a unique setting to examine such behavior as their effect on ceo cash compensation can be detrimental or beneficial but arise from the same underlying economic activity

strategic orientations incentive plan adoptions and firm performance evidence from electric utility firms this study examines the performance implications of the fit between strategic orientations and incentive plan characteristics research hypotheses are based on a framework that draws upon managerial discretion and agency theories to identify the links between firm strategy managerial motivation and control managerial risk bearing and incentive plan characteristics a pooled cross sectional time series research design is used to test hypotheses in a sample of 50 electric utility firms consistent with theory results indicate that annual bonus plans that use cash incentives and accounting measures of performance lead to better performance among firms with defender strategic orientations in contrast firms with prospector strategic orientations realize performance benefits when they adopt stock based incentive plans and use market measures to evaluate managerial performance 1997 john wiley sons ltd

total board remuneration and company performance using a hitherto neglected source of data this paper combines executive emoluments with executive options to construct a broader measure of executive pay than has been possible in earlier british studies the result of including the long term share option component of pay along with the more commonly utilized short term component of emoluments is to reveal executive pay as being significantly more sensitive to company performance than has previously been thought to be the case the paper questions the current policy stance of british institutional investors and of the greenbury committee with respect to executive share options copyright 1996 by royal economic society

the impact of snap on material hardships evidence from broad based categorical eligibility expansions this article examines whether expanding supplemental nutrition assistance program snap eligibility reduces material hardships of low income households during the great recession many states expanded the income threshold of eligibility for snap i show that expansions in eligibility increased the snap participation rate by 3 5 percentage points i also find that the expansion leads to a modest decrease in nonfood hardships such as rent and utility delinquencies however the increase in snap enrollment does not lead to greater food spending or a reduction in food insecurity except for households with children

macroeconomic fluctuations as sources of luck in ceo compensation macroeconomic fluctuations in interest rates exchange rates and inflation can be considered sources of good or bad luck for corporate performance if management is unable to adjust operations to these fluctuations based on a sample of 2 091 us firms we decompose the impacts of macroeconomic fluctuations on three measures of ceo compensation our study provides empirical support for the importance of considering macroeconomic fluctuations in designing ceo incentive schemes it adds to the managerial power literature on moral hazard and ceo compensation by pinpointing the obvious risk that the ceo in an asymmetric and non linear reward system will be inclined to prioritize his her own cash flow at the expense of fulfilling an assumed agency role the policy conclusion for remuneration committees and board of directors is to filter out macroeconomic influences on performance to be rewarded whenever an asymmetric compensation scheme has been opted for

the role of comparative advantage and learning in wage dynamics and intrafirm mobility evidence from germany this article measures the importance of job level assignment based on comparative advantage and learning about workers ability in explaining intrafirm wage and mobility dynamics using survey data from the german socio economic panel the results reveal the importance of nonrandom selection of workers into the rungs of the firm s job ladder measured and unmeasured ability play important roles in workers rank assignment with unmeasured ability being more important at higher levels of the hierarchical job structure there is some evidence of learning effects for workers below age 35 generating mobility between upper and executive levels

delays in new product introductions and the market value of the firm this paper empirically estimates the impact of not meeting promised new product introduction dates on the market value of the firm we estimate the average abnormal change in the market value for

the anglo american financial influence on ceo compensation in non anglo american firms this study examines the impact of anglo american financial markets on ceo compensation starting from a sample of norwegian and swedish listed firms we analyse this effect as manifested in the capital market anglo american cross listing and in the market for corporate control anglo american board membership these effects are analysed together with the geographically broader effect of the product and service market internationalisation of the firm we conclude that all three effects contribute positively to the level of ceo compensation we argue that the higher ceo compensation found in firms exposed to anglo american financial influence as compared with firms not subject to such influence reflects institutional contagion the demand for and supply of viable ceo candidates and a pay premium for increased risk of dismissal

why do cities pay more an empirical examination of some competing theories of the urban wage premium abstract ols regression identifies a 19 percent wage advantage for workers in large urban areas fixed effects estimation suggests that two thirds of this premium can be explained by cities attracting workers of higher unmeasured skills and ability the remaining wage premium is shown to consist of both level and growth elements the wage level effect is consistent with a productivity advantage for firms located in cities the wage growth effect is shown to relate in part to a cumulative advantage in the returns to job mobility for urban workers this last finding highlights the importance of coordination in urban labor markets

ceo compensation after deregulation the case of electric utilities the 1992 national energy policy act nepa intensified competition in the electric utility industry by allowing nonutility generators to produce and sell power in wholesale energy markets congress expected nepa to lead to improved operating efficiencies by substituting market forces for regulation a data set that is unique to the utility industry allows us to test how and whether utility firms reallocated resources to improve efficiencies and more important for this study whether ceo compensation changed in accordance with agency theory predictions that ceo compensation would become more incentive based and more equity based in the competitive operating environment

accounting earnings and top executive compensation abstract this paper investigates the role of accounting earnings in top executive compensation contracts it provides evidence in support of the hypothesis that earnings based incentives help shield executives from market wide factors in stock prices the paper demonstrates that earnings reflect firm specific changes in value but are less sensitive to market wide movements in equity values as a result the inclusion of earnings based performance measures in executive compensation contracts helps shield executives from fluctuations in firm value that are beyond their control the hypothesis is shown to explain cross sectional variation in the use of earnings based incentives

corporate performance and managerial remuneration an empirical analysis abstract economic theories of efficient compensation predict a positive relationship between executive pay and corporate performance and yet efforts to document this relationship have been largely unsuccessful in this paper we argue that previous cross sectional studies have omitted important variables which seriously bias their results using data that focus on individual executives over time we find that executive compensation is strongly positively related to corporate performance as measured by shareholder return and growth in firm sales the results are robust to the stock market performance measure utilized

equilibrium warrant pricing models and accounting for executive stock options under apb opinion no 25 compensation expense arising from executive stock options consists of the excess of the market value of the stock over the exercise price of the options on their grant dates if the exercise price equals the market value of the stock on the grant date which is typically the case no compensation expense is recognized this accounting treatment has been frequently criticized for its bias toward underestimating the cost of an option to the issuing firm and a number of alternative valuation models have been suggested in the accounting literature by and large these valuation models have been borrowed from the finance literature where they were developed to explain the pricing of warrants and traded options the purpose of this paper is to assess empirically how well two of these valuation models perform in providing estimates of the value of traded securities warrants that are similar in many respects to executive stock options 2 this evidence should help calibrate the magnitude of the errors

the effect of accounting procedure changes on ceos cash salary and bonus compensation abstract this paper examines the effect of accounting procedure changes on cash salary and bonus compensation to ceos we estimate whether there is an adjustment to the statistical relation between compensation and corporate earnings following changes that lower earnings fifo to lifo inventory valuation and that raise earnings accelerated to straight line depreciation the results indicate that 1 subsequent to these changes salary and bonus payments are based on reported earnings rather than earnings under the original accounting method and 2 the potential compensation effect of the changes is small compared to the effect of economy or industry wide changes in compensation

geography of savings in the german occupational pension system burger c geography of savings in the german occupational pension system regional studies the german pension reform of 2001 significantly decreased the level of public pensions for future generations and created instead voluntary supplementary plans this paper analyses the regional structure of savings amounts in the case of occupational pensions using a unique commercial dataset containing the records of 286 000 employees joining between the years 2002 and 2009 the analysis applies different location definitions in explaining financial behaviour the differences in the relationship between metropolitan and non metropolitan east and west and north and south are explained with the geographical nature of decision contexts implications are drawn on human behaviour and geography

the dependence of pay performance sensitivity on the size of the firm i analyze the relationship between firm size and the extent to which executive compensation depends on the wealth of the firm s shareholders i use a simple agency model to motivate an econometric model of this relationship estimating this model on chief executive officer ceo compensation data using nonlinear least squares i determine that pay performance sensitivity as defined by jensen and murphy 1990b appears to be approximately inversely proportional to the square root of firm size however measured i also analyze the properties of pay performance sensitivity for teams of executives working for the same firm and show it to have similar properties as ceo pay performance sensitivity

the transition in east germany when is a ten point fall in the gender wage gap bad news the gender wage gap in east germany has narrowed by 10 percentage points in transition but women have experienced much more severe employment difficulties than men using the german socio economic panel for 1990 94 i show that on balance women have lost relative to men almost half the relative wage gain is due to exits from employment of the low skilled who are disproportionately women the female employment decline is not primarily voluntary more than half the gender gap in the hazard rate from employment reflects a general fall in demand for low skilled workers reduced child care plays no role

enriching a theory of wage and promotion dynamics inside firms in previous work we showed that a model that integrates job assignment human capital acquisition and learning can explain several empirical findings concerning wage and promotion dynamics inside firms in this article we extend that model in two ways first we incorporate schooling and derive further testable implications that we then compare with the available empirical evidence second and more important we show that introducing task specific human capital allows us to produce cohort effects we further argue that task specific human capital is a realistic concept and may have many important implications we also discuss limitations of our extended approach

the paradox of globalization labor relations in germany and beyond what is the impact of globalization on labor in the advanced industrial countries one body of work holds that globalization pushes all countries toward neoliberalism another argues that the impact of globalization will vary according to prevailing institutional arrangements and predicts continued divergence between the so called liberal and coordinated market economies in an analysis of the german case that combines case study and formal modeling methods we refute the first neoliberal convergence theory showing that globalization in some ways empowers unions by rendering employers extremely vulnerable to industrial unrest furthermore we suggest some revisions to the second varieties of capitalism perspective we show that in germany employers increased vulnerability to conflict has shored up centralized bargaining arrangements in the short run but at the same time has also set in motion feedback effects that are deeply destabilizing to the system in the longer term

labor markets production strategies and wage bargaining institutions the swedish employer offensive in comparative perspective transformed patterns of labor market governance occupy a central place in the study of contemporary west european political economies here detailed analysis of the dramatic decentralization of wa