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How Internal Transaction costs drive compensation schemes

Author

Listed:
  • ROUZIES, Dominique
  • ANDERSON, Erin

    (INSEAD)

  • COUGHLAN, Anne T.

    (Kellogg School of Management, Evanston)

Abstract

The literature on chief executive officers (CEOs) established that economics and sociological rationales are both essential to understand the level and structure of CEOs' compensation. Our thesis is that internal "transaction costs" or frictions override strictly economic criteria to determine pay levels and pay structures. We study mid-level jobs that have features strikingly similar to the CEO. We show that pay checks and their underlying structure follow counterintuitive patterns, as if the employer resorts to a third party (i.e. the customer base) to reduce employee discontent over pay. We also find that firms reward managers as if they have considerable value added.

Suggested Citation

  • ROUZIES, Dominique & ANDERSON, Erin & COUGHLAN, Anne T., 2004. "How Internal Transaction costs drive compensation schemes," HEC Research Papers Series 802, HEC Paris.
    • Handle: RePEc:ebg:heccah:0802
    as

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    References listed on IDEAS

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    1. Richard B. Freeman, 1994. "Working Under Different Rules," NBER Books, National Bureau of Economic Research, Inc, number free94-1.
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    More about this item

    Keywords

    internal transaction costs; compensation; CEO;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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