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This study explores the role of executive vertical pay disparity in explaining firms’ choice of CSR activities (internal vs. external CSR). Based on tournament theory and the attention-based view, we first propose that vertical pay disparity leads executives to increase CSR activities, but in this process, compared to external CSR activities, executives are more likely to increase internal CSR activities. We then propose that the effect of executive vertical pay disparity on the choice of CSR activities will be moderated by three situational cues: state-owned enterprises (SOEs), litigation risk, and slack resources. Empirical analyses based on unbalanced panel data of China’s listed manufacturing firms from 2010 to 2018 show that our hypotheses are largely supported. Our results show that vertical pay disparity drives executives to increase CSR activities that contribute to the long-term interests of shareholders; however, in the process, executives focus on certain stakeholders over others.

Robert King Merton’s article published in Science popularized the Matthew Effect: “For to everyone who has, more will be given and he will grow rich; but from the one who has not, even what he has will be taken away” (Matthew 25:29). The Matthew Effect prevails at the individual, organization-industry, and country-global levels. This interdisciplinary review connects the Holy Bible with agency theory, tournament theory, corporate social responsibility (CSR), prospect theory, behavioral economics, the psychology of money, and business ethics in the literature. I expand the Matthew Effect, incorporate prospect theory and the love of money (1 Timothy 6:9–10), and develop a multi-level theory of the Matthew Effect in Monetary Wisdoms: Individual decision-makers apply their deep-rooted values (avaricious monetary aspiration, the love of money attitude) as a lens, frame the critical concerns in the immediate and omnibus contexts, and maximize expected utility and ultimate serenity-happiness across people, context, and time at the individual, organization-industry, and country-global levels. The rich (with talents, integrity, character, and wisdom) serve God, enjoying the ultimate joy and happiness. The poor serve mammon, destroying their lives. The rich get richer. The poor get poorer. Scholars of business ethics and CSR must explore this phenomenon in future studies.

Tournament-like promotion systems are the default in audit firms, which are generally internally owned professional partnerships. While awarding promotions in a contest-like fashion stimulates contestants’ motivation and productivity, it may also upset an organizations’ ethical climate and trigger ethically adverse behaviors. Since nearly all research on promotion tournaments in management has been conducted in public firms, little is known about how these incentive systems operate in professional partnerships. In this study, we analyze how the perception of the two controllable design parameters of promotion tournaments—the relative pay spread between winners and losers and tournament breadth in terms of the number of contestants that compete for a prize—affects audit firm behavior. Survey results provide evidence that the tournament’s perceived breadth prompts adverse behavior, as it does in public firms. Contrary to conventional wisdom, however, the perceived pay spread has no significant effect on adverse behavior, but triggers desirable behaviors instead. Our study suggests that promotion tournaments indeed provide powerful incentives, but also that understanding the unintended consequences of these incentives on organizational ethical climates and behavior requires tournament theory to be contextualized when it is applied in new settings like internally owned professional partnerships.

We investigate the relationship between the dispersion of executive pay and bank performance/valuation by examining two competing theories, the tournament theory (hierarchical wage structure) and the equity fairness theory (compressed wage structure). The key variable of executive pay dispersion is measured using a hand-collected dataset composed of 63 banks from OECD countries and 29 banks from developing countries. The dataset covers the period 2004–2012. By combining and modifying a translog profit function and a pay-dispersion model, we are able to address the potential problems of relying on reduced-form estimation. In our subsample of developed and civil law countries, where bank performance is measured by either Tobin’s Q or by the price-to-book ratio, the overall impact of executive pay dispersion is mostly negative, and we find supporting evidence for the equity fairness theory, except for very high levels of dispersion. There is a non-linear effect, as banks perform best when there is either very low or very high executive pay dispersion. For developing country sample banks, greater executive pay dispersion has a negative impact on bank profit. In our subsample of common law countries, however, we find no evidence of a significant impact of executive pay dispersion on bank performance. We conclude that lower executive pay dispersion, a proxy for teamwork, is mostly effective in enhancing bank performance in a significant section of sample banks, i.e., civil law and developing countries.

Based on basic organizational theories, this paper revisits studies about intergovernmental relationships in China and proposes a systematic explanation framework from the perspective of the allocation mechanism of authority and accountability. The institutional feature of government organization is unfolded from two dimensions, authority and accountability. In China, the authority and accountability of different hierarchies are strongly related but not clearly defined. Theories such as “Federalism, Chinese Style” are the basis for different conditions. The trade-off between control and incentive, specification, and coordination should be given more consideration with optimal analyses. As the main accountability practicing mechanism, Cadre management from upper-layer hierarchies greatly affects the allocation mechanism between different hierarchies. However, the tournament theory about promotion lacks vision, empirical bases, and explanation power. This paper studies the project system from an organizational perspective and indicates that the subcontracting form differs from regional decentralization, which accentuates interdepartmental competition and expansion.

Many environmental tax systems rely on self-reported emissions by firms. These emissions reports are verified through costly auditing efforts by regulatory agencies that are constrained in their auditing budgets. The typical finding in the literature is that the agencies allocate the available audit resources purely at random among otherwise identical firms (random audit mechanism). The game-theoretic analysis in this paper shows that the random audit mechanism is not optimal in terms of induced incentives for abating emissions. Instead, the analysis focusses on the incentives induced by endogenous competitive audit mechanisms (CAMs) on firms' emissions and self-reporting behavior. Under CAMs, higher reported emissions by a firm relative to other firms result in a lower audit intensity. This creates a reporting contest between the firms. CAMs have been shown to lead to more truthful reporting when emissions are exogenous to the firms. I endogenize the emissions decisions of the firms and compare the incentives on firms' emissions and self-reporting under two types of CAMs to the random audit mechanism. The two CAMs apply different degrees of competition in reporting. In line with the literature, I find that both CAMs lead to more truthful reporting. Interestingly and novel to the literature, I find that some competition in reporting induces fewer emissions compared with random auditing, while too much competition in reporting induces comparatively higher emissions caused by firms.

Salary payments are important to us for understanding both the relationship and the causality between salary structures and team performance in labour market theory. Using salary data from the Korean Professional Baseball League (KPBL), this paper conducts Panel Granger tests to investigate the causality between pay and performance. Our empirical results show that the causality only runs from the dispersion of salary payment to team performance, but not vice versa. Moreover, the evidence also shows that total salary does not cause team performance, and vice versa. Therefore, payrolls cannot buy wins, and wins cannot bring payrolls in the KPBL.

We examine the impact of firms’ complexity on pay differentials within the top management team. Using the basic model of tournament theory and its extensions, we suggest competing hypotheses. The basic model predicts a positive relation between complexity and the pay spreads across top management. model extensions incorporate behavioral consequences of tournament-like compensation structures. As collaboration gains importance with complexity, these models predict a negative relation between complexity and pay spreads. Our results show stronger support for the basic model. Hence, firms with high levels of complexity tend to implement tournament solutions, thereby neglecting their potential pitfalls.

In this article, I examine whether and to what extent intra-firm compensation structure affects managerial incentives and firm performance. Using an unbalanced panel consisting of a total of 43 626 executives in 1362 publicly listed corporations in China during 1999–2007, I find that pay rewards increase as executives move up the corporate hierarchy and that the largest pay gap is between first- and second-tier executives. Pay dispersion is positively related to the number of tournament participants, level of risk in the business environment and firm performance. Moreover, state ownership and corporate governance play some role in determining managerial pay dispersion and firm performance. The empirical results are consistent with tournament theory and against equity, relative deprivation and sabotage theories of managerial compensation.

Carter, Ittner and Zechman (2009) examine the use of explicit relative performance evaluation (RPE) conditions in performance-vested equity plans in a sample of United Kingdom (U.K.) firms in 2002. They find that factors suggested by economic theories (for example, removal of common shocks, tournament theory) are more closely associated with specific features of the plan than with the firm-level decision to use an RPE equity plan. My discussion focuses on the interpretation of these findings and the opportunities and implications for future research. I also summarize the views of five U.K. directors who were involved in the design and use of performance-vested equity plans.

When competitive weightlifters tie — a fairly frequent occurrence at the international level — the higher final rank is awarded to the lifter with the lower official bodyweight. Since winning a tiebreaker is more beneficial at higher ordinal ranks, tournament theory suggests a negative relationship between ability and bodyweight. Analysis from 58 Olympic tournaments shows evidence of a significantly negative relationship between ability and bodyweight except in heavier weight-classes. Cross-class differences in bodyweight reduction among high-ability lifters appear to be primarily attributable to cross-class differences in the expected benefits of bodyweight reduction. Eastern Economic Journal (2008) 34, 375–389. doi:10.1057/palgrave.eej.9050039

Standard results from tournament theory show that an employer should avoid organizing uneven tournaments in which workers are characterized by different cost functions. In this paper, we introduce a concept of emotions that workers have when comparing their own performance with the performances of their co-workers. We can show that under emotional workers the employer may prefer uneven tournaments to even ones. In that case, the employer benefits from both positive and negative emotions. Moreover, the behavior of emotional workers fits well with experimental findings on uneven tournaments where players choose excessive effort levels.

Much of the research on management compensation focuses on the level and structure of executives’ pay. In this study, we examine a compensation element that has not received so far considerable research attention—the dispersion of compensation across managers—and its impact on firm performance. We examine the implications of two theoretical models dealing with pay dispersion—tournament versus equity fairness. Tournament theory stipulates that a large pay dispersion provides strong incentives to highly qualified managers, leading to higher efforts and improved enterprise performance, while arguments for equity fairness suggest that greater pay dispersion increases envy and dysfunctional behavior among team members, adversely affecting performance. Consistent with tournament theory, we find that firm performance, measured by either Tobin’s Q or stock performance, is positively associated with the dispersion of management compensation. We also document that the positive association between firm performance and pay dispersion is stronger in firms with high agency costs related to managerial discretion. Furthermore, effective corporate governance, especially high board independence, strengthens the positive association between firm performance and pay dispersion. Our findings thus add to the compensation literature a potentially important dimension: managerial pay dispersion.

This paper examines how the organization of a civil-law judiciary—the German labour court system—shapes court performance. It is argued that civil-law judiciaries can be considered as internal labour markets in which the main incentive derives from career opportunities. Resulting hypotheses are tested on data for nine German Labour Courts of Appeal (Landesarbeitsgerichte) over the period 1980–1998. Two performance measures are computed: the confirmation rate and a productivity measure. The confirmation rate captures how often decisions are upheld in an appeal at the Federal Labour Court. Court productivity is measured by a score derived via data envelopment analysis (DEA) and includes as outputs the number of finished cases and the number of published decisions. Regression analyses show: Courts employing more judges with a Ph.D. are more productive, but write decisions that are less often confirmed by the Federal Labour Court. Courts employing judges with higher ex ante promotion probabilities are less productive and write decisions that are less often confirmed.