Research Question/ Issue: Do large, within-firm executive pay differences hurt firm performance? Prior literature shows mixed results concerning the sign of the relationship between executive pay disparity and firm performance. This study evaluates that literature, clarifies what tournament...

We empirically test whether executives' increases in base salary when promoted to CEO result from the wage bids of competing firms (i.e., "market-based tournaments") or from the strategic choices of the firm's board of directors to elicit optimal executive incentives (i.e., "classic...