Younger CEO and older managers: focusing on tournament incentives
We investigate the effectiveness of tournament theory based on the age gap between the CEO and the top management team (TMT) in Korean firms. While tournament incentives encourage managers to work harder to improve their performance, their effects may differ on executives’ sociological and psycholog...
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| Veröffentlicht in: | Economics of governance 2023-12, Vol.24 (4), p.549-573 |
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| creator | Hong, Jun Yeung Jeon, Sung Min Lee, Gun |
| description | We investigate the effectiveness of tournament theory based on the age gap between the CEO and the top management team (TMT) in Korean firms. While tournament incentives encourage managers to work harder to improve their performance, their effects may differ on executives’ sociological and psychological characteristics. Under Confucian culture, where seniority is highly valued and there is great respect for a senior person, we expect that the effectiveness of tournament theory would differ based on the age gap between the CEO and TMT. Using firms listed on the Korean stock market from 2013 to 2020, we document a significant and positive relationship between the CEO and TMT pay gap and firm performance only when the CEO is older than the average executive in the TMT. Furthermore, we find a significant positive relationship between the pay gap and firm performance only when the CEOs is older than the oldest executives. In addition, we find that the incentive effect of the pay gap between the CEO and TMT exists in horizontal culture firms, even when the CEO is younger than the average age of executives in the TMT. Our findings suggest that, in the presence of an age hierarchy, older executives who feel uncomfortable inhibit collaboration among the TMT, thereby impacting the tournament incentive effect. These observations underscore the importance of social factors in designing executive compensation. |
| doi_str_mv | 10.1007/s10101-023-00303-7 |
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While tournament incentives encourage managers to work harder to improve their performance, their effects may differ on executives’ sociological and psychological characteristics. Under Confucian culture, where seniority is highly valued and there is great respect for a senior person, we expect that the effectiveness of tournament theory would differ based on the age gap between the CEO and TMT. Using firms listed on the Korean stock market from 2013 to 2020, we document a significant and positive relationship between the CEO and TMT pay gap and firm performance only when the CEO is older than the average executive in the TMT. Furthermore, we find a significant positive relationship between the pay gap and firm performance only when the CEOs is older than the oldest executives. In addition, we find that the incentive effect of the pay gap between the CEO and TMT exists in horizontal culture firms, even when the CEO is younger than the average age of executives in the TMT. Our findings suggest that, in the presence of an age hierarchy, older executives who feel uncomfortable inhibit collaboration among the TMT, thereby impacting the tournament incentive effect. 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These observations underscore the importance of social factors in designing executive compensation.</description><subject>Age differences</subject><subject>Business</subject><subject>Chief executive officers</subject><subject>Companies</subject><subject>Compensation</subject><subject>Compensation and benefits</subject><subject>Culture</subject><subject>Economic Theory/Quantitative Economics/Mathematical Methods</subject><subject>Economics</subject><subject>Economics and Finance</subject><subject>Employee incentives</subject><subject>Employment discrimination</subject><subject>Executive compensation</subject><subject>Executives</subject><subject>Executives (Business)</subject><subject>Incentives</subject><subject>Income inequality</subject><subject>International Political Economy</subject><subject>Original Paper</subject><subject>Political Theory</subject><subject>Public Administration</subject><subject>Public Finance</subject><subject>Social factors</subject><subject>Stock exchanges</subject><subject>Stock markets</subject><issn>1435-6104</issn><issn>1435-8131</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2023</creationdate><recordtype>article</recordtype><sourceid>N95</sourceid><sourceid>7UB</sourceid><sourceid>8G5</sourceid><sourceid>ABUWG</sourceid><sourceid>AFKRA</sourceid><sourceid>AZQEC</sourceid><sourceid>BENPR</sourceid><sourceid>CCPQU</sourceid><sourceid>DWQXO</sourceid><sourceid>GNUQQ</sourceid><sourceid>GUQSH</sourceid><sourceid>M2O</sourceid><recordid>eNp9UU1LxDAQLaLg5x_wVPBqdfLRJvW2LH6B4EUPnkKapDWym2inFfz3ptsF9SIDmcnkvcdMXpadErggAOISCaQogLICgAErxE52QDgrC0kY2d3WFQG-nx0ivgEQWovqIFu8xDF0rs-X14-5DjaPK5tuax106uJV3kYzog9dHkM-xLEPeu3CkPtgUvKfDo-zvVav0J1s81H2fHP9tLwrHh5v75eLh8JwVg2FBGKlgZKWjArtQFrDaysskdYKYlswTcucbSQ3dW10axrnSllXtOGUS1uxo-xs1n3v48focFBvm3FWqKiUlBBWckioixnV6ZVTPrRx6LVJYd3amxhc61N_IQRwWVKYZM9_EZppV4fpQN-9DtjpEfEvnM5w00fE3rXqvfdr3X8pAmqyQs1WqGSF2lihRCLlM8mlCTz-UKSA9B01myBshmB6nAz52e4f4W-8upUm</recordid><startdate>20231201</startdate><enddate>20231201</enddate><creator>Hong, Jun Yeung</creator><creator>Jeon, Sung Min</creator><creator>Lee, Gun</creator><general>Springer Berlin Heidelberg</general><general>Springer</general><general>Springer Nature B.V</general><scope>OQ6</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>N95</scope><scope>XI7</scope><scope>0-V</scope><scope>3V.</scope><scope>7UB</scope><scope>7WY</scope><scope>7WZ</scope><scope>7XB</scope><scope>87Z</scope><scope>88J</scope><scope>8AO</scope><scope>8FK</scope><scope>8FL</scope><scope>8G5</scope><scope>ABUWG</scope><scope>AFKRA</scope><scope>ALSLI</scope><scope>AZQEC</scope><scope>BENPR</scope><scope>BEZIV</scope><scope>CCPQU</scope><scope>DPSOV</scope><scope>DWQXO</scope><scope>FRNLG</scope><scope>F~G</scope><scope>GNUQQ</scope><scope>GUQSH</scope><scope>K60</scope><scope>K6~</scope><scope>K8~</scope><scope>KC-</scope><scope>L.-</scope><scope>M0C</scope><scope>M2L</scope><scope>M2O</scope><scope>M2R</scope><scope>MBDVC</scope><scope>PQBIZ</scope><scope>PQBZA</scope><scope>PQEST</scope><scope>PQQKQ</scope><scope>PQUKI</scope><scope>Q9U</scope><orcidid>https://orcid.org/0000-0001-5356-0405</orcidid></search><sort><creationdate>20231201</creationdate><title>Younger CEO and older managers: focusing on tournament incentives</title><author>Hong, Jun Yeung ; Jeon, Sung Min ; Lee, Gun</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c436t-801d8c0525327ae08dc49d7d18dd71df0cbf3edb84c99cafcbee58962b4248d63</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2023</creationdate><topic>Age differences</topic><topic>Business</topic><topic>Chief executive officers</topic><topic>Companies</topic><topic>Compensation</topic><topic>Compensation and benefits</topic><topic>Culture</topic><topic>Economic Theory/Quantitative Economics/Mathematical Methods</topic><topic>Economics</topic><topic>Economics and Finance</topic><topic>Employee incentives</topic><topic>Employment discrimination</topic><topic>Executive compensation</topic><topic>Executives</topic><topic>Executives (Business)</topic><topic>Incentives</topic><topic>Income inequality</topic><topic>International Political Economy</topic><topic>Original Paper</topic><topic>Political Theory</topic><topic>Public Administration</topic><topic>Public Finance</topic><topic>Social factors</topic><topic>Stock exchanges</topic><topic>Stock markets</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Hong, Jun Yeung</creatorcontrib><creatorcontrib>Jeon, Sung Min</creatorcontrib><creatorcontrib>Lee, Gun</creatorcontrib><collection>ECONIS</collection><collection>CrossRef</collection><collection>Gale Business: Insights</collection><collection>Business Insights: Essentials</collection><collection>ProQuest Social Sciences Premium Collection</collection><collection>ProQuest Central (Corporate)</collection><collection>Worldwide Political Science Abstracts</collection><collection>Access via ABI/INFORM (ProQuest)</collection><collection>ABI/INFORM Global (PDF only)</collection><collection>ProQuest Central (purchase pre-March 2016)</collection><collection>ABI/INFORM Global (Alumni Edition)</collection><collection>Social Science Database (Alumni Edition)</collection><collection>ProQuest Pharma Collection</collection><collection>ProQuest Central (Alumni) (purchase pre-March 2016)</collection><collection>ABI/INFORM Collection (Alumni Edition)</collection><collection>Research Library (Alumni Edition)</collection><collection>ProQuest Central (Alumni Edition)</collection><collection>ProQuest Central UK/Ireland</collection><collection>Social Science Premium Collection</collection><collection>ProQuest Central Essentials</collection><collection>ProQuest Central</collection><collection>Business Premium Collection</collection><collection>ProQuest One Community College</collection><collection>Politics Collection</collection><collection>ProQuest Central Korea</collection><collection>Business Premium Collection (Alumni)</collection><collection>ABI/INFORM Global (Corporate)</collection><collection>ProQuest Central Student</collection><collection>Research Library Prep</collection><collection>ProQuest Business Collection (Alumni Edition)</collection><collection>ProQuest Business Collection</collection><collection>DELNET Management Collection</collection><collection>ProQuest Politics Collection</collection><collection>ABI/INFORM Professional Advanced</collection><collection>ABI/INFORM Global</collection><collection>Political Science Database</collection><collection>Research Library</collection><collection>Social Science Database</collection><collection>Research Library (Corporate)</collection><collection>ProQuest One Business</collection><collection>ProQuest One Business (Alumni)</collection><collection>ProQuest One Academic Eastern Edition (DO NOT USE)</collection><collection>ProQuest One Academic</collection><collection>ProQuest One Academic UKI Edition</collection><collection>ProQuest Central Basic</collection><jtitle>Economics of governance</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Hong, Jun Yeung</au><au>Jeon, Sung Min</au><au>Lee, Gun</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Younger CEO and older managers: focusing on tournament incentives</atitle><jtitle>Economics of governance</jtitle><stitle>Econ Gov</stitle><date>2023-12-01</date><risdate>2023</risdate><volume>24</volume><issue>4</issue><spage>549</spage><epage>573</epage><pages>549-573</pages><issn>1435-6104</issn><eissn>1435-8131</eissn><abstract>We investigate the effectiveness of tournament theory based on the age gap between the CEO and the top management team (TMT) in Korean firms. While tournament incentives encourage managers to work harder to improve their performance, their effects may differ on executives’ sociological and psychological characteristics. Under Confucian culture, where seniority is highly valued and there is great respect for a senior person, we expect that the effectiveness of tournament theory would differ based on the age gap between the CEO and TMT. Using firms listed on the Korean stock market from 2013 to 2020, we document a significant and positive relationship between the CEO and TMT pay gap and firm performance only when the CEO is older than the average executive in the TMT. Furthermore, we find a significant positive relationship between the pay gap and firm performance only when the CEOs is older than the oldest executives. In addition, we find that the incentive effect of the pay gap between the CEO and TMT exists in horizontal culture firms, even when the CEO is younger than the average age of executives in the TMT. Our findings suggest that, in the presence of an age hierarchy, older executives who feel uncomfortable inhibit collaboration among the TMT, thereby impacting the tournament incentive effect. These observations underscore the importance of social factors in designing executive compensation.</abstract><cop>Berlin/Heidelberg</cop><pub>Springer Berlin Heidelberg</pub><doi>10.1007/s10101-023-00303-7</doi><tpages>25</tpages><orcidid>https://orcid.org/0000-0001-5356-0405</orcidid></addata></record> |
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| source | Worldwide Political Science Abstracts; Business Source Complete; SpringerNature Journals; Political Science Complete |
| subjects | Age differences Business Chief executive officers Companies Compensation Compensation and benefits Culture Economic Theory/Quantitative Economics/Mathematical Methods Economics Economics and Finance Employee incentives Employment discrimination Executive compensation Executives Executives (Business) Incentives Income inequality International Political Economy Original Paper Political Theory Public Administration Public Finance Social factors Stock exchanges Stock markets |
| title | Younger CEO and older managers: focusing on tournament incentives |
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