Does Managerial Compensation Affect Workers' Effort?

Nils Hesse and María Fernanda Rivas

Journal of Applied Economics, 2015, vol. 18, issue 2, 297-323

Abstract: We explore in a two-level gift-exchange experiment whether the managerial compensation influences workers' effort decisions. Firstly, we find that there exists a strong positive relation between own wage and effort levels for the workers, while the managers' effort reaches a maximum for intermediate wages and decreases for very high wages. Secondly, our data suggests that the managerial compensations are significantly negatively correlated with the workers' effort choices: the higher the manager's wage, the lower the effort level chosen by the workers.

Date: 2015
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DOI: 10.1016/S1514-0326(15)30013-1

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