The relationship between pay‐for‐performance contracting and external monitoring

Abstract

Identifies three approaches to controlling the agent‐principal conflict for CEOs (market discipline, compensation structure and monitoring mechanisms) and reviews previous relevant research. Develops a mathematical model of the relationship between pay‐for‐performance sensitivity and external monitoring; and tests it on 1971‐1993 US data. Presents the results, which suggest that the sensitivity is significantly affected by monitors, growth opportunities and CEO share ownership. Considers consistency with other research and the implications of the findings.

Citation

Traichal, P.A., Gallinger, G.W. and Johnson, S.A. (1999), "The relationship between pay‐for‐performance contracting and external monitoring", Managerial Finance, Vol. 25 No. 9, pp. 68-88. https://doi.org/10.1108/03074359910766163