Publications
Publications
- April 2002
- Journal of Labor Economics
Internal Capital Markets and Firm-Level Compensation Incentives for Division Managers
By: Julie Wulf
Abstract
Do multidivisional firms structure compensation contracts for division managers to mitigate incentive problems in their internal capital markets? I find evidence that compensation and investment incentives are substitutes: firms providing a stronger link to firm performance in incentive compensation for division managers also provide weaker investment incentives through the capital budgeting process. Specifically, as the proportion of incentive pay for division managers that is based on firm performance increases, division investment is less responsive to division profitability. These findings are generally consistent with a model of influence activities by division managers in interdivisional capital allocation decisions.
Keywords
Capital Markets; Executive Compensation; Capital Budgeting; Motivation and Incentives; Profit; Decisions; Resource Allocation; Performance; Investment; Contracts
Citation
Wulf, Julie. "Internal Capital Markets and Firm-Level Compensation Incentives for Division Managers." Journal of Labor Economics 20, no. 2 (April 2002): S219–S262.