Abstract

"Corporate scandals, reflected in excessive management compensation and fraudulent accounts, cause great damage. Agency theory’s insistence to link the compensation of mangers and directors as closely as possible to firm performance is a major reason for these scandals.nThey cannot be overcome by improving variable pay for performance as selfish extrinsicnmotivation is reinforced. Based on the common pool approach to the firm, institutions arenproposed, serving to raise intrinsically motivated corporate virtue. More importance is to benattributed to fixed pay and strengthening the legitimacy of authorities by procedural fairness, relational contracts and organizational citizenship behavior."