Essays on managerial pay structures

My dissertation consists of micro-level analysis of three different aspects of managerial compensation: (i) its tournament structure, (ii) its gender differences, and (iii) the effect of corporate governance on top managers' pay for performance as opposed to "pay for luck".;The topics were inspired by the dramatically changing role of managers in modern firms in the recent years. In the command economy, where the state was the largest owner, managers were not motivated explicitly to pursue a firm's prosperity. However, with the transition to a market economy, the new owners have faced the challenge of viewing their managers as employees assigned in high-control positions who play a decisive role in the development of their companies. As a consequence, managerial contracts have started to be perceived as an important incentive device in transition economies. The motivation for the third essay comes from the series of corporate scandals in the beginning of 2000 in the United States. While the post-transition economies face the challenge of designing new incentive mechanisms, one of the most developed economies in the world had to completely re-design the well established role of the Chief Executive Officer by delegating back her monitoring authority to shareholders.;In the first chapter, I examine the structure of wages among Czech managers in a representative sample of medium and large firms in the context of tournament theory. This theory assumes that managers compete to be promoted to a higher job position within a firm. To provide incentives for participation in the tournament, managerial pay has to rise across hierarchical levels at an increasing rate. While there is evidence supporting the predictions of the theory in the most developed economies, it is not known whether this type of wage setting, which creates large within-firm wage disparity, is common practice in transition post-communist economies. Guided by the predictions of tournament theory, first, I find that the managerial pay differential between organizational levels is non-decreasing as managers climb the corporate ladder. Second, the winner's prize in the tournament, i.e., the pay gap at the very top of a firms' hierarchy, increases with the number of competitors for the position of the top manager.;In the second chapter, co-authored with Stepan Jurajda, we study gender pay differentials among top- and lower-level managerial employees in a large sample of Czech firms. Even though there is an extensive literature on the gender pay gap in post-communist economies, a study of a high-paid group such as that of managers is missing. Using the traditional Oaxaca-Blinder technique we find that approximately a third of the raw gender wage gap for both top- and lower-level managers can be explained by gender differences in age and education. This is in contrast to the situation with ordinary employees, where the demographic composition of the workforce is actually more favorable for women and does not explain the pay gap. The analysis suggests the presence of a sizable "unexplained" component of the managerial gender wage gap. Using matching decomposition techniques, we find that this "unexplained" wage gap (for men and women that are comparable in terms of demographics and employer type) is about 20% for both the two types of managers and for basic employees. The policy implication of these findings is that equality-enhancing policies aimed at the highly visible group of executives are more likely to be effective in equalizing wages of male and female top mangers if they focus on promotion policies practiced in the most prestigious high-paying companies.;In the third chapter, I examine the effect of the Sarbanes-Oxley Act of 2002 (SOX) on the structure of CEO pay in the largest US corporations. Since this law changes an important component of governance---the company board structure---it provides a natural ground for examining the existing theories of executive pay. Specifically, I consider the increased board oversight implied by SOX, which is expected to weaken the pay-for-performance link under standard agency models. Alternatively, if entrenched CEOs managed to capture the pay-setting process before SOX, stronger boards after SOX are expected to strengthen the pay-for-performance link and to reduce CEO "pay for luck", that is, the unearned reward that executives obtain for industry-wide movements in performance out of their control. Using the ExecuComp data, I find that the pay-for-performance link increases after 2002 in firms with weaker board oversight before 2002, that is in firms more affected by SOX stipulations. In contrast, the pay-for-performance relationship changes little in firms with independent boards. Further, "pay for luck" disappears after 2002, consistent with improved governance. (Abstract shortened by UMI.)...