Compensation Design and Career Concerns of Fund Manager
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We develop an optimal incentive contract for the fund manager with career concerns. Drawing upon the framework of Gibbons and Murphy (1992), we restructure the performance of fund manager with emphasis on the multiplicative effect of previous effort on the latter period, and derive the positive cross-period linkage of fund manager’s efforts. In particular, our study derives that a greater first-period’s effort by the fund manager will induce more second-period effort and greater compensation in either fixed or variable (performance-related) portion of the payment. Though the total performance related pay might increase as the result of greater effort in the previous period, we show that the pay-performance sensitivity in the second period will decline. Moreover, the initial wealth increase will motivate the fund manager to exert more effort and induce better performance, but decrease the pay-performance sensitivity in the second period.
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- Compensation Design and Career Concerns of Fund Manager
Review of Quantitative Finance and Accounting
Volume 24, Issue 4 , pp 379-397
- Cover Date
- Print ISSN
- Online ISSN
- Kluwer Academic Publishers
- Additional Links
- compensation design
- fund management
- career concerns
- pay-performance sensitivity
- Industry Sectors
- Author Affiliations
- 1. Department of Business Administration, National Cheng Kung University, Taiwan
- 2. Department of International Trade, National Chengchi University, Taiwan
- 3. Department of Business Administration, National Cheng Kung University, Taiwan