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Managerial accountability for payroll expense and firm-size wage effects

  • Robertas Zubrickas

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 firm size. We develop a nested agency model of economic organization of a firm with unaccountable managers, which in equilibrium obtains the firm-size wage effects - the large-firm wage premium and inverse relationship between firm size and wage dispersion.

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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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