Time-series analysis of industry tournament incentives

This figure presents the time-series pattern for industry pay gap and industry tournament incentive effects for ExecuComp firms from 1992 to 2005, excluding financials and utility firms. Indgap1 is the pay gap between the second highest CEO’s total compensation within the Fama-French 30 industries classification and CEO’s total compensation. Indgap2 is pay gap between the second highest CEO’s total compensation in the industry and size group and CEO’s total compensation. Vol|$=$|100 x Stock return vol, where Stock return vol is the standard deviation of one year of daily stock returns in year |$t +1$|⁠. Indgap1, Indgap2, and CEO total compensation are averaged across all firms in each year (⁠|$A)$|⁠. The horizontal axis represents firm age, which is measured by the number of years since the firm was added to the CRSP database (⁠|$B)$|⁠. Indgap1 and Indgap2 are then averaged among firms with the same age. The horizontal axis represents CEO tenure, which is measured by the number of years as firm’s CEO (⁠|$C)$|⁠. Indgap1 and Indgap2 are then averaged among CEOs with the same tenure. The vertical axis on the left side is the coefficient of the industry pay gap (Indgap1) based on the GMM IV regressions in Table 3 (⁠|$q)$| and Table 4 (Vol) (⁠|$D)$|⁠. To obtain the coefficients over time, we interact the industry pay gap with year dummies (using 1992 as the benchmark). The coefficient of industry pay gap in each year, except for 1992, is the sum of the coefficient of industry pay gap and the interaction term with the matched year dummy. The vertical axis on the right side of (⁠|$D)$| is CEO mobility, which is defined as the annual CEO turnover rate.