File Name: tournament theory and its relevance to executive pay .zip
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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.
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. The first theory argues that pay gap can have a positive incentive effect on senior executives and ordinary employees, saving the agency cost to the client and promoting sustainable development in the firm. On the other hand, behavior theory believes that pay gap would undermine the fairness of internal compensation and reduce enthusiasm and team cohesiveness of employees, thereby hindering the progress of the organization. Both of these perspectives have been supported by scholars despite having a few disagreements regarding the severity of impact.
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. Lazear and Rosen proposed tournament theory in their paper Rank-Order Tournaments as Optimum Labor Contracts , looking at performance related pay. Under conventional systems workers are paid a piece rate - an amount of money that relates to their output, rather than the time they input.
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.
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?
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.
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.
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. The reward system implies a prize that is awarded to that person, especially to executives Shen, Gentry and Tosi , , who performed as the best between his or her evaluated peer group becoming eventually the CEO or another top executive.
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.
В любой другой реальности было бы куда больше здравого смысла. Я, университетский профессор, - подумал он, - выполняю секретную миссию. Бармен с любезной улыбкой протянул Беккеру стакан: - A su gusto, senor. Клюквенный сок и капелька водки.
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