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Managerial accountability for payroll expense and firm-size wage effects


Zubrickas, Robertas (2011). Managerial accountability for payroll expense and firm-size wage effects. In: 26th Annual Congress of the European Economic Association, Oslo, 25 August 2011 - 29 August 2011.

Abstract

We argue that job performance appraisal is an agency problem between a manager and his employees featuring asymmetric transfer values: Ratings given by the manager are money equivalent for the employees but only partially so for the manager. The asymmetry assumption is based on evidence that managers are not held fully accountable for payroll expense incurred, which, we argue, stems from the misalignment of managerial compensation with the profits of the firm. Other evidence also shows that the problem of managerial unaccountability is more aggravated in larger firms. In this paper, we develop a nested agency model of economic organization of a firm with unaccountable managers, which in equilibrium obtains the firm-size wage effects the large-firm wage premium and inverse relationship between firm size and wage dispersion. We also relate and explain the compression of ratings phenomenon from literature on organizational psychology.

Abstract

We argue that job performance appraisal is an agency problem between a manager and his employees featuring asymmetric transfer values: Ratings given by the manager are money equivalent for the employees but only partially so for the manager. The asymmetry assumption is based on evidence that managers are not held fully accountable for payroll expense incurred, which, we argue, stems from the misalignment of managerial compensation with the profits of the firm. Other evidence also shows that the problem of managerial unaccountability is more aggravated in larger firms. In this paper, we develop a nested agency model of economic organization of a firm with unaccountable managers, which in equilibrium obtains the firm-size wage effects the large-firm wage premium and inverse relationship between firm size and wage dispersion. We also relate and explain the compression of ratings phenomenon from literature on organizational psychology.

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Additional indexing

Item Type:Conference or Workshop Item (Paper), refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Event End Date:29 August 2011
Deposited On:22 Feb 2012 15:43
Last Modified:07 Dec 2017 12:55
Official URL:http://www.eea-esem.com/files/papers/eea-esem/2011/1542/Empl%20Wage%20Sched_v2.pdf
Related URLs:http://www.zora.uzh.ch/51507/
http://eea-esem2011oslo.org/
Other Identification Number:merlin-id:6127

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