Ittner, Lambert, and Larcker (J. Accounting Economics (2003) this issue) present compelling evidence that new economy firms rely more on stock-based compensation than do old economy firms, based on 1998 and 1999 data from a proprietary sample of companies. I complement the ILL results by analyzing data over a longer time period (1992–2001) and, more importantly, document the effect of the 2000 market crash on stock-based pay in new economy firms. Finally, I offer evidence supporting the conjecture that differences in pay practices between new and old economy firms reflect accounting considerations, perceived costs, and competitive inertia.

Research in incentives has focused on performance measures and pay-performance sensitivities but has largely ignored the “performance standard”, which generates important incentives whenever plan participants can influence the standard-setting process. “Internally determined” standards are directly affected by management actions in the current or prior year, while “externally determined” standards are less easily affected. I show that companies choose external standards when prior performance is a noisy estimate of contemporaneous performance. In addition, companies using budget based and other internally determined performance standards have less-variable bonus payouts, and are more likely to smooth earnings, than companies using externally determined standards.

Economic theories of efficient compensation predict a positive relationship between executive pay and corporate performance, and yet efforts to document this relationship have been largely unsuccessful. In this paper, we argue that previous cross-sectional studies have omitted important variables which seriously bias their results. Using data that focus on individual executives over time, we find that executive compensation is strongly positively related to corporate performance as measured by shareholder return and growth in firm sales. The results are robust to the stock market performance measure utilized.

This paper studies optimal incentive contracts when workers have career concerns--concerns about the effects of current performance on future compensation. We show that the optimal compensation contract optimizes total incentives: the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract. Thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers. We find empirical support for this prediction in the relation between chief executive compensation and stock market performance.

Using the March Current Population Surveys and the 1960 census, this article describes earnings and employment changes for married couples in different types of households stratified by the husband's hourly wage. While declines in male employment and earnings have been greatest for low-wage men, employment and earnings gains have been largest for wives of middle- and high-wage men. These findings cast doubt on the notion that married women have increased their labor supply in the recent decades to compensate for the disappointing earnings growth of their husbands.