Paper #1134

Título:

Globalization and the provision of incentives inside the firm: The effect of foreign competition

Autores:

Vicente Cuñat y Maria Guadalupe

Data:

Enero 2009

Resumen:

This paper studies the effect of changes in foreign competition on the structure of compensation and incentives of U.S. executives. We measure foreign competition as import penetration and use tariffs and exchange rates as instrumental variables to estimate its causal effect on pay. We find that higher foreign competition leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it increases whithin-firm pay differentials between executive levels, with CEOs typically experiencing the largest wage increases, partly because they receive the steepest incentive contracts. Finally, higher foreign competition is also associated with a higher demand for talent. These results indicate that increased foreign competition can explain some of the recent trends in compensation structures.

Palabras clave:

Incentives, Performance-related-pay, Wage Structure, Promotions, Demand for talent, Globalization, Product Market Competition

Códigos JEL:

M52, L1, J31

Área de investigación:

Economía Laboral, Pública, de Desarrollo y de la Salud

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