Executive Incentives and Strategic Talent Acquisition: Evidence from Poaching

Abstract:

We examine the relation between relative performance evaluation ("RPE") in executive pay plans and labor talent poaching of rank-and-file employees. Using resume data, we document that RPE-using firms hire significantly more labor talent away from their RPE peers than from their other industry rivals. This effect is most pronounced among hard-to replace employees (i.e. higher skilled and longer tenured employees). Collectively, the evidence suggests that firms poach hard-to-replace labor talent away from their RPE peers in order to harm the peers' performance outcomes, thereby improving the focal firm's relative performance (and thus the CEO's compensation).