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Does Managerial Compensation Affect Workers' Effort?

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  • Nils Hesse
  • María Fernanda Rivas

Abstract

We explore in a two-level gift-exchange experiment whether the managerial compensation influences workers' effort decisions. Firstly, we find that there exists a strong positive relation between own wage and effort levels for the workers, while the managers' effort reaches a maximum for intermediate wages and decreases for very high wages. Secondly, our data suggests that the managerial compensations are significantly negatively correlated with the workers' effort choices: the higher the manager's wage, the lower the effort level chosen by the workers.

Suggested Citation

  • Nils Hesse & María Fernanda Rivas, 2015. "Does Managerial Compensation Affect Workers' Effort?," Journal of Applied Economics, Taylor & Francis Journals, vol. 18(2), pages 297-323, November.
    • Handle: RePEc:taf:recsxx:v:18:y:2015:i:2:p:297-323
    DOI: 10.1016/S1514-0326(15)30013-1
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