Work-Related Perks, Agency Problems, and Optimal Incentive Contracts
AbstractThis paper examines the effects of work-related perks, such as corporate jets and limousines, nice offices, secretarial staff, etc., on the optimal incentive contract. In a linear contracting framework, perks characterized by complementarities between production and consumption improve the trade-off between incentives and insurance that determines the optimal contract for a risk-averse agent. We show that (i) the perk may be offered even if its direct consumption and productivity benefits are offset by its cost; (ii) the perk will be offered for free; (iii) agents in more uncertain production environments will receive more perks; (iv) senior executives should receive both more perks and stronger explicit incentives; and (v) better corporate governance can lead firms to award their CEOs more perks. Our analysis also offers insights into the firms’decisions about how much autonomy they should grant to their employees and about optimal perk provision when managers and workers are organized in teams.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 1107.
Length: 41 pages
Date of creation: Oct 2006
Date of revision:
Job Perks; Agency Problems; Optimal Incentive Contracts;
Other versions of this item:
- Anthony M. Marino & Ján Zábojník, 2008. "Work-related perks, agency problems, and optimal incentive contracts," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 565-585.
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
- M5 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics
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