Is there an inverse U-shaped relationship between pay and performance?

Is there an inverse U-shaped relationship between pay and performance?

Given the increasing concerns about the escalation in executive compensation, this study aims to provide new insights into the link between executive pay and firm performance by empirically testing for an inverse U-shaped relationship. For this purpose, we re-examine the relation using a nonlinear m...

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Veröffentlicht in:The North American journal of economics and finance 2014-04, Vol.28, p.347-357
Hauptverfasser: Kuo, Hsien-Chang, Lin, Dan, Lien, Donald, Wang, Lie-Huey, Yeh, Li-Jen
Format: Artikel
Sprache:eng
Schlagworte:
Correlation analysis
Executive compensation
Firm performance
Management theory
Mathematical models
Pay-for-performance
Studies
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container_end_page 357
container_issue
container_start_page 347
container_title The North American journal of economics and finance
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creator Kuo, Hsien-Chang
Lin, Dan
Lien, Donald
Wang, Lie-Huey
Yeh, Li-Jen
description Given the increasing concerns about the escalation in executive compensation, this study aims to provide new insights into the link between executive pay and firm performance by empirically testing for an inverse U-shaped relationship. For this purpose, we re-examine the relation using a nonlinear model. Our results show a significant inverse U-shaped relationship between executive pay and firm performance. The finding provides support for both optimal contracting and managerial power theories with the former dominating at low level of firm performance and the latter dominating at high level of firm performance.
doi_str_mv 10.1016/j.najef.2014.03.007
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subjects Correlation analysis
Executive compensation
Firm performance
Management theory
Mathematical models
Pay-for-performance
Studies
title Is there an inverse U-shaped relationship between pay and performance?
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