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Managerial Power and Compensation


  • Bruno S. Frey
  • Marcel Kucher


According to the widely used Managerial Power Model, a higher hierarchical position with associated higher power leads to higher compensation. In contrast, the Compensating Wage Differentials Model argues that there is a non-positive relationship between positional power and total compensation. Both power and income yield utility and in equilibrium managers are prepared to trade-off the two elements. The two opposing propositions are tested using a large survey data set from Switzerland. The results suggest that power positions do not yield higher compensation. Rather, there is a non-positive relationship between power position and compensation, if one takes into account all relevant factors influencing total compensation.

Suggested Citation

  • Bruno S. Frey & Marcel Kucher, "undated". "Managerial Power and Compensation," IEW - Working Papers 028, Institute for Empirical Research in Economics - University of Zurich.
  • Handle: RePEc:zur:iewwpx:028

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    References listed on IDEAS

    1. Rosen, Sherwin, 1987. "The theory of equalizing differences," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 12, pages 641-692 Elsevier.
    2. Charles Brown, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 94(1), pages 113-134.
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    More about this item


    Power; Managerial Compensation; Compensating Wage Differentials;

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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