Discussion Paper Details

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Title: Relative Performance Evaluation, Sabotage and Collusion

Author(s): Matthew J. Bloomfield, Catarina Marvao and Giancarlo Spagnolo

Publication Date: July 2020

Keyword(s): cartels, Collusion, Compensation, Relative Performance Evaluation and Sabotage

Programme Area(s): Financial Economics and Industrial Organization

Abstract: We examine whether the potential for costly sabotage is a deterrent to firms' use of relative performance evaluation ("RPE") in CEO pay plans. We exploit illegal cartel membership as a source of variation in the potential for costly sabotage and document that firms are more likely to use RPE if they are currently cartel members. Moreover, firms frequently drop RPE from their CEOs' pay plans immediately after their cartels are detected. We further provide suggestive evidence that the potential for costly sabotage explains these patterns; cartel membership severs the empirical association between RPE and competitive aggression.

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Bibliographic Reference

Bloomfield, M, Marvao, C and Spagnolo, G. 2020. 'Relative Performance Evaluation, Sabotage and Collusion'. London, Centre for Economic Policy Research.