Executive compensation and tournament theory: Empirical tests on Danish data

This article adds to the empirical literature on tournament theory as a che ery of executive compensation. I test several propositions of tournament mo dels on a rich data set containing information about 2,600 executives in 21 0 Danish firms during a 4-year period. I ask, Are pay differentials between job levels consistent with relative compensation? Is pay dispersion betwee n levels higher in noisy environments? Is the dispersion affected by the nu mber of tournament participants? Is average pay lower in firms with more co mpressed pay structures? Does wider pay dispersion enhance firm performance ? Most of the predictions gain support in the data.