Using Fixed Wages for Management Control: An Intra-Firm Test of the Effect of Relative Compensation on Performance

James Hesford, Nicolas Mangin, Mina Pizzini

    OnderzoeksoutputAcademicpeer review


    Efficiency wage theory predicts employers can elicit better employee performance ex post by paying higher fixed compensation ex ante, relative to the market wage. Relative compensation may thereby constitute an alternative control mechanism when performance-based compensation is difficult to implement. Using proprietary data from 436 hotels in a U.S. lodging chain, we find that relative compensation is positively associated with performance, and additional profits associated with higher compensation exceed the wage increase. Relative compensation has a larger impact on profit when tasks are more complex and a smaller impact on profit, revenue, and quality when chain monitoring is stronger. Finally, the magnitude of the relation between relative compensation and financial performance (nonfinancial) is larger (the same) for employees earning more than the median wage compared with those earning less. Overall, our results are consistent with assertions that higher relative compensation attracts more capable candidates and mitigates shirking, but provide little support for reciprocity.

    Originele taal-2English
    Pagina's (van-tot)137-154
    Aantal pagina's18
    TijdschriftJournal of Management Accounting Research
    Nummer van het tijdschrift3
    Vroegere onlinedatumdec-2019
    StatusPublished - 2020

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