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Yes, Managers Should be Paid Like Bureaucrats

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Author Info
Bruno S. Frey
Margit Osterloh

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Abstract

Corporate scandals, reflected in excessive management compensation and fraudulent accounts, cause great damage. Agency theory’s insistence to link the compensation of mangers and directors as closely as possible to firm performance is a major reason for these scandals. They cannot be overcome by improving variable pay for performance as selfish extrinsic motivation is reinforced. Based on the common pool approach to the firm, institutions are proposed, serving to raise intrinsically motivated corporate virtue. More importance is to be attributed to fixed pay and strengthening the legitimacy of authorities by procedural fairness, relational contracts and organizational citizenship behavior.

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Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp187.

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Handle: RePEc:zur:iewwpx:187

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Related research
Keywords: Agency theory; intrinsic motivation; crowding theory; management compensation pay for performance; organizational citzenship;

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Find related papers by JEL classification:
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executive Compensation

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Christian Ewerhart & Nuno Cassola & Steen Ejerskov & Natacha Valla, . "Liquidity, Information, and the Overnight Rate," IEW - Working Papers iewwp186, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  2. Fehr, Ernst & Fischbacher, Urs & von Rosenbladt, Bernhard & Schupp, Jürgen & Wagner, Gert G., 2003. "A Nation-Wide Laboratory: Examining Trust and Trustworthiness by Integrating Behavioral Experiments into Representative Surveys," IZA Discussion Papers 715, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Igor Evstigneev & Thorsten Hens & Klaus Schenk-Hoppé, 2006. "Evolutionary stable stock markets," Economic Theory, Springer, vol. 27(2), pages 449-468, January. [Downloadable!] (restricted)
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  4. Alois Stutzer & Bruno S. Frey, . "Stress That Doesn't Pay: The Commuting Paradox," IEW - Working Papers iewwp151, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  5. Foellmi, Reto & Zweimuller, Josef, 2004. "Inequality, market power, and product diversity," Economics Letters, Elsevier, vol. 82(1), pages 139-145, January. [Downloadable!] (restricted)
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  6. Alois Stutzer & Bruno S. Frey, . "Does Marriage Make People Happy, Or Do Happy People Get Married?," IEW - Working Papers iewwp143, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  7. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2004. "Valuing Public Goods: The Life Satisfaction Approach," CREMA Working Paper Series 2004-11, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
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  8. Lorenz Goette & David Huffman & Ernst Fehr, . "Loss Aversion and Labor Supply," IEW - Working Papers iewwp178, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  9. Stephan Meier & Bruno Frey, 2004. "Do business students make good citizens?," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 11(2), pages 141-163, July. [Downloadable!] (restricted)
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  10. Bruno S. Frey & Alois Stutzer, . "Testing Theories of Happiness," IEW - Working Papers iewwp147, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  11. Hens,Thorsten & Herings,P. Jean-Jacques & Predtetchinskii,Arkadi, 2003. "Limits to Arbitrage when Market Participation Is Restricted," Research Memoranda 061, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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  12. Bruno S. Frey & Simon Luechinger, . "Measuring Terrorism," IEW - Working Papers iewwp171, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  13. Bruno S. Frey & Stephan Meier, . "The Economics of Museums," IEW - Working Papers iewwp149, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  14. Aleksander Berentsen & Esther Bruegger & Simon Loertscher, . "Heterogeneity, Local Information, and Global Interaction," IEW - Working Papers iewwp182, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  15. Bruno S. Frey & Simon Luechinger, . "Terrorism: Deterrence May Backfire," IEW - Working Papers iewwp136, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  16. Ernst Fehr & John A. List, 2004. "The Hidden Costs and Returns of Incentives-Trust and Trustworthiness Among CEOs," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 743-771, 09. [Downloadable!] (restricted)
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  17. Foellmi, Reto & Oechslin, Manuel, 2007. "Who gains from non-collusive corruption?," Journal of Development Economics, Elsevier, vol. 82(1), pages 95-119, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bruno S. Frey & Simon Luechinger & Alois Stutzer, . "Calculating Tragedy: Assessing the Costs of Terrorism," IEW - Working Papers iewwp205, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  2. Bruno S. Frey, 2006. "Evaluitis – Eine Neue Krankheit," IEW - Working Papers iewwp293, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  3. Jörn Hendrich Block, 2008. "Are CEOs in Family Firms Paid Like Bureaucrats? Evidence from Bayesian and Frequentist Analyses," SFB 649 Discussion Papers SFB649DP2008-033, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  4. Benno Torgler & Justina A.V. Fischer, 2006. "Does Envy Destroy Social Fundamentals? The Impact of Relative Income Position on Social Capital," Working Papers 2006.38, Fondazione Eni Enrico Mattei. [Downloadable!]
    Other versions:
  5. Benno Torgler & Sascha L. Schmidt & Bruno S. Frey, 2006. "Relative Income Position And Performance: An Empirical Panel Analysis," IEW - Working Papers iewwp268, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  6. Ernst Fehr & Susanne Kremhelmer & Klaus M. Schmidt, . "Fairness and the Optimal Allocation of Ownership Rights," IEW - Working Papers iewwp224, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  7. Bruno S. Frey & Susanne Neckermann, 2005. "Auszeichnungen: Ein Vernachlässigter Anreiz," IEW - Working Papers iewwp254, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  8. Philipp C. Wichardt, . "An Application of Global Games to Signalling Models," IEW - Working Papers iewwp223, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  9. Salvador Barberà & Anke Gerber, . "A Note on the Impossibility of a Satisfactory Concept of Stability for Coalition Formation Games," IEW - Working Papers iewwp238, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  10. Otten, J.A., 2008. "Theories on executive pay. A literature overview and critical assessment," MPRA Paper 6969, University Library of Munich, Germany. [Downloadable!]
  11. Ruth Bender & Lance Moir, 2006. "Does ‘Best Practice’ in Setting Executive Pay in the UK Encourage ‘Good’ Behaviour?," Journal of Business Ethics, Springer, vol. 67(1), pages 75-91, August. [Downloadable!] (restricted)
  12. Philipp C. Wichardt & Pavlo R. Blavatskyy, . "Base-Rate Neglect and Imperfect Information Acquisition," IEW - Working Papers iewwp233, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  13. Margit Osterloh & Bruno S. Frey, . "Shareholders Should Welcome Employees as Directors," IEW - Working Papers iewwp228, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  14. Brugger Jakob, Samuel Immanuel, 2007. "¿Puede el gobierno corporativo aprender del gobierno público?
    [Can corporate governance learn from public governance?]    ," MPRA Paper 13857, University Library of Munich, Germany, revised Apr 2008. [Downloadable!]
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