Executive pay in Japan

The role of bank-appointed monitors and the main bank relationship

Naohito Abe, Noel Gaston, Katsuyuki Kubo

Research output: Contribution to journalArticle

17 Citations (Scopus)

Abstract

A feature of tournament models is that executive compensation is not independent of the wages paid at lower levels of the corporate hierarchy. Agency models show that compensation based on firm performance is a means by which incentives can be provided to executives once a promotion tournament has been resolved. In this paper, we combine elements of both models and show that the existence of an outsider who monitors the firm's activities will lower the sensitivity of pay to firm performance for top executives and reduce the importance of tournament-based incentives. Using panel data for 55 Japanese electronics firms, we find support for the notion that bank-appointed Board members help monitor top executives and that tournament considerations are a particularly important feature of executive compensation in Japan.

Original languageEnglish
Pages (from-to)371-394
Number of pages24
JournalJapan and the World Economy
Volume17
Issue number3
DOIs
Publication statusPublished - 2005 Aug

Fingerprint

bank
Japan
firm
incentive
performance
wage
promotion
Tournament
Bank relationships
Executive pay
Main bank
electronics
Incentives
Executive compensation
Firm performance

Keywords

  • Agency
  • Executive pay
  • Main Bank relationship
  • Monitoring
  • Tournaments

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Executive pay in Japan : The role of bank-appointed monitors and the main bank relationship. / Abe, Naohito; Gaston, Noel; Kubo, Katsuyuki.

In: Japan and the World Economy, Vol. 17, No. 3, 08.2005, p. 371-394.

Research output: Contribution to journalArticle

@article{7ba8de705c984bc195f0771b57274a73,
title = "Executive pay in Japan: The role of bank-appointed monitors and the main bank relationship",
abstract = "A feature of tournament models is that executive compensation is not independent of the wages paid at lower levels of the corporate hierarchy. Agency models show that compensation based on firm performance is a means by which incentives can be provided to executives once a promotion tournament has been resolved. In this paper, we combine elements of both models and show that the existence of an outsider who monitors the firm's activities will lower the sensitivity of pay to firm performance for top executives and reduce the importance of tournament-based incentives. Using panel data for 55 Japanese electronics firms, we find support for the notion that bank-appointed Board members help monitor top executives and that tournament considerations are a particularly important feature of executive compensation in Japan.",
keywords = "Agency, Executive pay, Main Bank relationship, Monitoring, Tournaments",
author = "Naohito Abe and Noel Gaston and Katsuyuki Kubo",
year = "2005",
month = "8",
doi = "10.1016/j.japwor.2004.03.003",
language = "English",
volume = "17",
pages = "371--394",
journal = "Japan and the World Economy",
issn = "0922-1425",
publisher = "Elsevier",
number = "3",

}

TY - JOUR

T1 - Executive pay in Japan

T2 - The role of bank-appointed monitors and the main bank relationship

AU - Abe, Naohito

AU - Gaston, Noel

AU - Kubo, Katsuyuki

PY - 2005/8

Y1 - 2005/8

N2 - A feature of tournament models is that executive compensation is not independent of the wages paid at lower levels of the corporate hierarchy. Agency models show that compensation based on firm performance is a means by which incentives can be provided to executives once a promotion tournament has been resolved. In this paper, we combine elements of both models and show that the existence of an outsider who monitors the firm's activities will lower the sensitivity of pay to firm performance for top executives and reduce the importance of tournament-based incentives. Using panel data for 55 Japanese electronics firms, we find support for the notion that bank-appointed Board members help monitor top executives and that tournament considerations are a particularly important feature of executive compensation in Japan.

AB - A feature of tournament models is that executive compensation is not independent of the wages paid at lower levels of the corporate hierarchy. Agency models show that compensation based on firm performance is a means by which incentives can be provided to executives once a promotion tournament has been resolved. In this paper, we combine elements of both models and show that the existence of an outsider who monitors the firm's activities will lower the sensitivity of pay to firm performance for top executives and reduce the importance of tournament-based incentives. Using panel data for 55 Japanese electronics firms, we find support for the notion that bank-appointed Board members help monitor top executives and that tournament considerations are a particularly important feature of executive compensation in Japan.

KW - Agency

KW - Executive pay

KW - Main Bank relationship

KW - Monitoring

KW - Tournaments

UR - http://www.scopus.com/inward/record.url?scp=13844271158&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=13844271158&partnerID=8YFLogxK

U2 - 10.1016/j.japwor.2004.03.003

DO - 10.1016/j.japwor.2004.03.003

M3 - Article

VL - 17

SP - 371

EP - 394

JO - Japan and the World Economy

JF - Japan and the World Economy

SN - 0922-1425

IS - 3

ER -