Abstract
This paper reports a positive and statistically significant relationship between a firm’s industry adjusted sales growth and CEO incentive compensation. This relationship is driven by firms which belong to more competitive industries. We find no relationship between incentive pay and product market competition for firms belonging to less competitive industries. This suggests the existence of collusive behavior in the product market among the firms in less competitive industries. Furthermore, the relationship between industry adjusted sales growth and CEO incentive compensation is more prominent in firms where the CEO is less entrenched. Entrenched CEOs do not respond to incentive compensation.
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