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dc.contributor.authorSheikh, Aamer
dc.description.abstractI examine the effect of ratcheting performance standards on the pay-performance sensitivity of CEOs over the period 1992 � 1999. Indjejikian and Nanda (1999) in an analytical study, derive one empirically testable theoretical prediction. They predict that in order to counter the agent�s propensity to reduce effort (and output) in early periods to avoid being held to a higher standard in the future, the principal sets pay-performance sensitivities high in the presence of the ratchet effect. Thus, ex-post, one would expect to observe higher pay-performance sensitivities for ratchet firms than for non-ratchet firms. |I test Indjejikian and Nanda�s (1999) theoretical prediction using simultaneous equations for a sample of 320 ratchet firm-years and 218 non-ratchet firm-years over the period 1992-1999. Results (3SLS estimation) indicate that there is no significant difference in ROA pay-performance sensitivity between ratchet firms and non-ratchet firms. However, the RET pay-performance sensitivity is indeed higher (as predicted) for ratchet firms than for non-ratchet firms. I interpret the results of the 3SLS estimation as providing mixed support for the Indjejikian and Nanda (1999) model.
dc.rightsOn Campus Only
dc.subjectRatchet effect
dc.subjectExecutive compensation
dc.subjectSimultaneous equations
dc.subjectPay-performance sensitivity
dc.subjectPerformance standards
dc.subjectBonus plans.
dc.titleThe effect of ratcheting performance standards on CEO compensation
dc.description.majorBusiness Administration
dc.description.advisorKenneth M. Gaver
dc.description.committeeKenneth M. Gaver
dc.description.committeeLinda S. Bamber
dc.description.committeePaul A. Copley
dc.description.committeeChristopher M. Cornwell
dc.description.committeeJennifer J. Gaver

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