Resource title

How internal transaction costs drive compensation schemes

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Resource description

The literature on chief executive officers (CEOs) establishes that economic and sociological rationales are both essential to understand the level and structure of CEOs' compensation. The authors' thesis is that internal "transaction costs" or frictions override strictly economic criteria to determine pay levels and pay structures. They study mid-level jobs that have features strikingly similar to the CEO. They show that pay checks and their underlying structure follow counterintuitive patterns, as if the employer resorts to a third party (i.e. the customer base) to reduce employee discontent over pay. They also find that firms reward managers as if they have considerable value added.

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Resource language

en

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application/pdf

Resource resource URL

http://flora.insead.edu/fichiersti_wp/inseadwp2004/2004-86.pdf

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Copyright INSEAD. All rights reserved