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Industry Incentives and CEO Pay

  • Mar 21, 2019
Industry Incentives and CEO Pay

Finance professor Zhichuan (Frank) Li and his colleagues measure what are called industry tournament incentives for CEOs, as measured by the compensation gap between a CEO at one firm and the highest-paid CEO among similar firms. This incentive is a measure of the available “prize” in the group of firms. Especially when there is high CEO mobility, and a higher probability that a firm’s CEO may win this prize, firm performance, firm risk, and the riskiness of the firm’s investments are positively associated with the external industry pay gap.

Jeffrey L Coles, Zhichuan (Frank) Li, Albert Y Wang; Industry Tournament Incentives, The Review of Financial Studies, Volume 31, Issue 4, 1 April 2018, Pages 1418–1459.