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Work-Related Perks, Agency Problems, and Optimal Incentive Contracts

Author

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  • Anthony Marino

    () (USC)

  • Jan Zabojnik

    () (Queen's University)

Abstract

This 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.

Suggested Citation

  • Anthony Marino & Jan Zabojnik, 2006. "Work-Related Perks, Agency Problems, and Optimal Incentive Contracts," Working Papers 1107, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1107
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1107.pdf
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    Cited by:

    1. Xu, Nianhang & Li, Xiaorong & Yuan, Qingbo & Chan, Kam C., 2014. "Excess perks and stock price crash risk: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 419-434.
    2. Weinschenk, Philipp, 2017. "Working conditions and regulation," Labour Economics, Elsevier, vol. 44(C), pages 177-191.
    3. Dietl, Helmut M. & Grossmann, Martin & Lang, Markus & Wey, Simon, 2013. "Incentive effects of bonus taxes in a principal-agent model," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 93-104.
    4. Pattarin Adithipyangkul & Ilan Alon & Tianyu Zhang, 2011. "Executive perks: Compensation and corporate performance in China," Asia Pacific Journal of Management, Springer, vol. 28(2), pages 401-425, June.
    5. Acharya, Viral V & Gabarro, Marc & Volpin, Paolo, 2012. "Competition for Managers, Corporate Governance and Incentive Compensation," CEPR Discussion Papers 8936, C.E.P.R. Discussion Papers.
    6. Song, Joon, 2008. "Perks: Contractual Arrangements to Restrain Moral Hazard," Economics Discussion Papers 8921, University of Essex, Department of Economics.
    7. Kvaløy, Ola & Nieken, Petra & Schöttner, Anja, 2015. "Hidden benefits of reward: A field experiment on motivation and monetary incentives," European Economic Review, Elsevier, vol. 76(C), pages 188-199.
    8. Kvaløy, Ola & Schöttner, Anja, 2015. "Incentives to motivate," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 26-42.
    9. Gul, Ferdinand A. & Cheng, Louis T.W. & Leung, T.Y., 2011. "Perks and the informativeness of stock prices in the Chinese market," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1410-1429.
    10. repec:mhr:jinste:urn:sici:0932-4569(201612)172:4_645:wtebcf_2.0.tx_2-c is not listed on IDEAS
    11. Weinschenk, Philipp, 2013. "Compensation, perks, and welfare," Economics Letters, Elsevier, vol. 120(1), pages 67-70.
    12. Hua Zhang & Yuanyang Song & Yuan Ding, 2015. "What Drives Managerial Perks? An Empirical Test of Competing Theoretical Perspectives," Journal of Business Ethics, Springer, vol. 132(2), pages 259-275, December.
    13. Anthony Marino, 2015. "Work environment and moral hazard," Journal of Regulatory Economics, Springer, vol. 48(1), pages 53-73, August.
    14. Martin Grossmann & Markus Lang & Helmut Dietl, 2016. "Why Taxing Executives' Bonuses Can Foster Risk-Taking Behavior," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(4), pages 645-664, December.
    15. Alessandro Fedele & Luca Panaccione, 2015. "Pay package reshuffling and managerial incentives: A principal-agent analysis," BEMPS - Bozen Economics & Management Paper Series BEMPS28, Faculty of Economics and Management at the Free University of Bozen.
    16. Hammermann, Andrea & Mohnen, Alwine, 2012. "Who Benefits from Benefits? Empirical Research on Tangible Incentives," IZA Discussion Papers 6284, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Job Perks; Agency Problems; Optimal Incentive Contracts;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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