The role of peer performance in managerial compensation surrounding the 1996 Telecommunications Act

In this study, we use the introduction of the US 1996 Telecommunications Act as our empirical setting to examine the dynamics of the role of peer performance in managerial compensation. We adopt a difference-in-differences design using size- and performance-matched manufacturing firms as the benchmarks. The results indicate that, relative to the benchmark firms, telecommunications firms strengthened the (negative) tie between managerial compensation and peer performance after the Act. The effect is significant for peer stock returns, and in the same direction, though not significant, for peer accounting return on equity. The results suggest that relative performance evaluation became more valuable for telecommunication firms after the Act.