Managerial Compensation in a Two-Level Gift-Exchange Experiment

Nils Hesse () and M. Fernanda Rivas
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Nils Hesse: Albert-Ludwigs Universität Freiburg

No 2307, Documentos de Trabajo (working papers) from Department of Economics - dECON

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.

Keywords: managerial compensation; social preferences; laboratory experiment; gift-exchange; effort; downsizing (search for similar items in EconPapers)
JEL-codes: C92 J33 M12 M52 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2007-12
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:ude:wpaper:2307

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