Recent literature has been conflicted as to whether executive compensation schemes have significant incentive pay elements. The most well-known study supporting the existence of pay-for-performance used data corresponding to the recent bull market of the 1990s. This paper estimates a similar model of incentive pay using data from more recent volatile markets of 1999–2001, and finds that the incentive component of executive pay has at least diminished, and has perhaps reversed. Thus, incentive pay may be something of a “fair weather” phenomenon.
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