Thursday, October 20, 2016

When do managers care about their competitors' profitability?

When stocks are commonly owned by big institutional shareholders, these big shareholders reward managers for industry performance, rather than individual company performance, as that maximizes the value of their portfolio:
... in industries with high common ownership, top managers receive almost twice as much pay for the good performance of their competitors as managers do in industries with low common ownership. This effect is even more pronounced for CEOs alone. Essentially, CEOs are rewarded more for the good performance of their competitors than they are for the performance of the company they run.

See our earlier blog post on How to decrease industry rivalry.

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