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Managerial accountability for payroll expense and firm-size wage effects

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  • Robertas Zubrickas

Abstract

We argue that job performance appraisal is an agency problem with asymmetric transfer values: an employee is paid in proportion to the rating received from his line manager, who only partially internalizes the resultant payroll cost. This asymmetry in rating valuations is based on evidence that managers are not fully accountable for payroll expense, with the degree of unaccountability increasing in fi rm size. We develop a nested agency model of economic organization of a fi rm with unaccountable managers, which in equilibrium obtains the firm-size wage effects— the large-fi rm wage premium and inverse relationship between fi rm size and wage dispersion.

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Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 474.

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Date of creation: Mar 2011
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Handle: RePEc:zur:iewwpx:474

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Keywords: Compression of ratings; managerial incentives; soft budget constraint; firm-size wage effects; principal-agent model;

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