Empirical Evidence on Career Concerns Empirical studies support the
notion that incentives in organizations depend on both career concerns and
explicit performance pay.
26
Gibbons and Murphy (1992)
nd that CEO compensation
exhibits the most performance sensitivity for executives closer to retirement, consistent with explicit incentives being more important when career
concerns are weaker. In fact, the combined use of implicit incentives through
career concerns and explicit incentives through contracts could provide an explanation
for the lack of indexation in contracts i.e., for the apparent empirical
failure of the informativeness principle, discussed above. It may be that relative
performance evaluation is primarily implemented through promotion and
ring decisions rather than through explicit contracts. Consistent with thiidea, Morck et al. (1989) document that CEO turnover increases when a
rm
underperforms relative to its industry.
27