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Why socially concerned firms use low-powered managerial incentives: A complementary explanation

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  • Kopel, Michael
  • Putz, Eva Maria

Abstract

We study a duopoly market where a profit-maximizing firm and a socially concerned firm compete by offering differentiated products to consumers. Both firms delegate the quantity (price) decisions to a manager. The socially concerned firm employs an intrinsically motivated manager whose interest is partially aligned with the firm's objective. The profit-maximizing firm's manager is simply interested in maximizing compensation. We find that depending on the substitutability of the firms' products and the level of the firm's social concern, the socially concerned firm might prefer – solely for strategic reasons – a flat wage for compensating its motivated manager rather than a variable bonus. Our paper points to strategic motives as a complementary explanation for the observation that hybrid organizations with objectives other than profits frequently rely on different forms of compensation than their for-profit rivals.

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  • Kopel, Michael & Putz, Eva Maria, 2021. "Why socially concerned firms use low-powered managerial incentives: A complementary explanation," Economic Modelling, Elsevier, vol. 94(C), pages 473-482.
    • Handle: RePEc:eee:ecmode:v:94:y:2021:i:c:p:473-482
    DOI: 10.1016/j.econmod.2020.11.002
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    More about this item

    Keywords

    Managerial compensation; Intrinsic motivation; Socially concerned firms; Strategic incentives in duopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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