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Managerial Compensation in a Two-Level Gift-Exchange Experiment

Author

Listed:
  • Nils Hesse

    (Albert-Ludwigs Universität Freiburg)

  • Fernanda Rivas

    (Universidad Carlos III de Madrid)

Abstract

In times of increasing international competition firms demand concessions from employees to carry out necessary restructuring measures, which can partly be resisted by workers, whose behavior at work can not be fully contracted upon. At the same time, management compensations are perceived as too high by the majority of the population. In our paper we explore to what extent these two observations are related. In a two-level gift-exchange experiment it is asked if the managerial compensation influences workers' effort decisions and workers' willingness to accept wage cuts. We compare sessions in which the managerial compensation is public information with private information sessions. Our data suggests that the managerial compensations in public wage sessions are signiffcantly negatively correlated with the workers' effort choices -in particular after wage cuts. The profit-maximizing strategy for the firm is to compress wages when the managerial compensation is public information.

Suggested Citation

  • Nils Hesse & Fernanda Rivas, 2007. "Managerial Compensation in a Two-Level Gift-Exchange Experiment," Documentos de Trabajo (working papers) 2307, Department of Economics - dECON.
    • Handle: RePEc:ude:wpaper:2307
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    File URL: https://hdl.handle.net/20.500.12008/2090
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    More about this item

    Keywords

    managerial compensation; social preferences; laboratory experiment; gift-exchange; effort; downsizing;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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