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  Summary of the winning paper of the II Edition of the “Jaime Fernández de Araoz on Corporate Finance” Award


The winning project is an empirical study of how companies adjust their executive salary policies to match the competitive environment in which they operate. To carry out the study, the authors used detailed information on North American companies and executives covering a period of time when fluctuating exchange rates and business policy obliged many companies to adapt to a changing environment.

The results of the study show that companies facing an unexpected increase in levels of international competition make significant changes to the remuneration structure for their executives. The main changes observed are as follows: instead of earning a fixed salary, remuneration becomes more directly linked to company performance, so that a greater proportion of salary is linked to results; likewise, salary increases associated with promotion are larger and this leads to a greater disparity of salaries within the company; furthermore, companies give greater rewards to executive talent and have a more aggressive personnel policy. In general terms, the results show how more intense international competition makes company profits more sensitive to good or bad decisions made by employees, the reaction of companies to this phenomena being to demand greater effort and skills from their staff and to reward them accordingly.

The results indicate that internationalisation, deregulation and increased competition between modern economies are partly responsible for labour mobility, changes in salary structures and particularly the increase in the use of incentive packages such as productivity bonuses or “stock options”.

The work sits within the framework of a wider line of research developed by the authors studying the effect of competition on diverse areas of company organisation, which shows that these results can be extended to other countries, to competition between local companies and to the body of workers within the company. The project in relevant insofar as it sheds light on the mechanisms through which globalisation and competition affect company productivity and employee welfare.

If you would like to read the complete work, you can click here.