Discussion paper

DP15115 Relative Performance Evaluation, Sabotage and Collusion

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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Citation

Bloomfield, M, C Marvao and G Spagnolo (2020), ‘DP15115 Relative Performance Evaluation, Sabotage and Collusion‘, CEPR Discussion Paper No. 15115. CEPR Press, Paris & London. https://cepr.org/publications/dp15115