Eyes on the prize: do industry tournament incentives shape the structure of executive compensation?

Emdad Islam, Lubna Rahman, Rik Sen, Jason Zein

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We investigate whether external industry tournament incentives influence the design of executive compensation contracts. Using staggered negative mobility shocks as exogenous disruptions to tournament incentives, we show that firms treated by these shocks act to restore their executives diminished implicit risk-taking incentives by increasing compensation vega. On average, postshock compensation vegas increase by about 10%. These effects are considerably larger for treated executives with strong tournament incentives and high ex ante mobility. Mobility shocks have no impact on compensation delta or total pay. Our results shed light on how explicit risk-taking incentives are optimized with respect to executive career concerns.

Original languageEnglish
Number of pages54
JournalJournal of Financial and Quantitative Analysis
DOIs
Publication statusAccepted/In press - 2021

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