Globalization and the Provision of Incentives Inside the Firm: The Effect of Foreign Competition

Authors

Vincente Cuñat, London School of Economics
Maria Guadalupe, Columbia University

Document Type

Article

Publication Date

2009

DOI

https://doi.org/10.1086/599817

Abstract

This article studies the effect of changes in foreign competition on the structure of compensation and incentives of U.S. executives. We find that import penetration (instrumented with exchange rates and tariffs) leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it increases within-firm pay differentials between executive levels, with CEOs typically experiencing the largest wage increases. Finally, higher foreign competition is also associated with a higher demand for talent. These results suggest that increased foreign competition can explain some of the recent trends in compensation structures.

Disciplines

Labor and Employment Law | Law

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Comments

© 2009 by The University of Chicago.

Recommended Citation

Vincente Cuñat & Maria Guadalupe, Globalization and the Provision of Incentives Inside the Firm: The Effect of Foreign Competition, 27 J. Labor Econ. 179 (2009).
Available at: https://scholarship.law.columbia.edu/contract_economic_organization/6