Political promotion, CEO incentives, and the relationship between pay and performance

• Main Authors: Cao, X. (Author), Lemmon, M. (Author), Pan, X. (Author), Qian, M. (Author), Tiane, G. (Author)
• Format: Article
• Language: English
• Published: INFORMS Inst.for Operations Res.and the Management Sciences 2019
• Subjects: CEO compensation; CEO compensations; Economic incentive; Firm Performance; Management; Managerial incentives; Managers; Operations research; Performance; Performance sensitivity; Political promotion; State owned enterprise
• Online Access: View Fulltext in Publisher
• ISBN: 00251909 (ISSN)
• DOI: 10.1287/mnsc.2017.2966

Both theory and empirical evidence suggest that managers’ career concerns can serve as an important source of implicit economic incentives. We examine how incentives for political promotion are related to compensation policy and firm performance in Chinese state-owned enterprises. We find that the likelihood that the CEO receives a political promotion is positively related to firm performance. We also find that CEOs with a higher likelihood of political promotion have lower pay levels and lower pay–performance sensitivity. Overall, the evidence suggests that competition in the political job market helps mitigate weak monetary incentives for CEOs in China. Copyright: © 2018 INFORMS