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Do Tax Reforms Affect Firm Performance and Executive Remuneration? Evidence from a Compressed Wage Environment
Author(s) -
DaleOlsen Harald
Publication year - 2012
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2011.00899.x
Subject(s) - remuneration , labour economics , earnings , wage , business , payroll , affect (linguistics) , executive compensation , economics , monetary economics , accounting , finance , corporate governance , linguistics , philosophy
The agency framework predicts a strong positive relationship between executive effort, pay and firm performance. We study how changes in Norwegian payroll tax legislation and earnings tax (which influence CEOs ’ return on effort), affect firm performance and executive earnings for over 11,800 firms. Both reduced payroll tax and reduced marginal earnings tax increase firm performance measured by firms’ operating margins. In the latter case total pay increases, but contingent on the return on firm performance, the fixed wage drops. The sensitivity of the remuneration scheme to the earnings tax depends on CEO productivity and effort costs.