Agency Theory and the Motivational Effect of Management Compensation

Rita D. Kosnik · Kenneth L. Bettenhausen

37 citations0/0 files storedGroup & Organization Management

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Corporate Finance and Governance Accounting and Organizational Management Experimental Behavioral Economics Studies

Abstract

Agency research has concluded that executive compensation through fixed salary promotes managerial opportunism, whereas equity ownership promotes managers' compliance with stockholders' interests. Using an experimental design, this study examined the extent to which these motivational effects of compensation are conditioned by the level of board control and conditions in the managerial labor market. Participants' opportunistic behavior was negatively affected by the level of board control. This effect was reinforced by high fixed salary compensation and favorable conditions in the managerial labor market.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1989Agency Theory: An Assessment and Review 1969The Handbook of Social Psychology 1980Agency Problems and the Theory of the Firm 1983Agency Problems and Residual Claims 1985The effect of bonus schemes on accounting decisions 1989Boards of Directors and Corporate Financial Performance: A Review and Integrative Model 2011The effects of bonus schemes on accounting decisions

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