Managerial Compensation in a Two-Level Gift-Exchange Experiment
AbstractIn times of increasing international competition firms demand concessions from employees to carry out necessary restructuring measures, which can partly be resisted by workers, whose behavior at work can not be fully contracted upon. At the same time, management compensations are perceived as too high by the majority of the population. In our paper we explore to what extent these two observations are related. In a two-level gift-exchange experiment it is asked if the managerial compensation influences workers' effort decisions and workers' willingness to accept wage cuts. We compare sessions in which the managerial compensation is public information with private information sessions. Our data suggests that the managerial compensations in public wage sessions are signiffcantly negatively correlated with the workers' effort choices -in particular after wage cuts. The profit-maximizing strategy for the firm is to compress wages when the managerial compensation is public information.
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Bibliographic InfoPaper provided by Department of Economics - dECON in its series Documentos de Trabajo (working papers) with number 2307.
Length: 29 pages
Date of creation: Dec 2007
Date of revision:
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managerial compensation; social preferences; laboratory experiment; gift-exchange; e¤ort; downsizing;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executives; Executive Compensation
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-08 (All new papers)
- NEP-CBE-2008-03-08 (Cognitive & Behavioural Economics)
- NEP-EXP-2008-03-08 (Experimental Economics)
- NEP-LAB-2008-03-08 (Labour Economics)
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