Abstract
This study introduces a new dimension, age diversity of non-CEO executives, which moderates the relationship between promotion-based tournament incentives, measured as the pay gap between the CEO and non-CEO executives, and firm performance. For a sample of Chinese listed firms from 2005 to 2015, we find that the tournament incentives for non-CEO executives relate positively to firm performance. This relationship is weaker when non-CEO executives are from three or more age cohorts whereas the tournament effect is enhanced when non-CEO executives are from the same age cohort. We reason that the peer pressure among the similar-aged non-CEO executives enhances the tournament competition and that age hierarchy reduces incentives for younger executives to compete. Our findings have important implications for corporations in China and other countries (e.g., Japan, Korea, Latin America, Africa) in which seniority is highly valued when setting executive compensations as well as optimizing organizational structure.
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