An Experimental Investigation of Employer Discretion in Employee Performance Evaluation and Compensation

An Experimental Investigation of Employer Discretion in Employee Performance Evaluation and Compensation

Employment relationships provide fertile ground for both employee and employer opportunism. Employers worry about whether employees will devote sufficient effort to work, and employees are concerned about whether employers will compensate them appropriately. In this paper, we examine whether employe...

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Veröffentlicht in:The Accounting Review. - American Accounting Association. - 80(2005), 2, Seite 563-583
1. Verfasser: Fisher, Joseph G. (VerfasserIn)
Weitere Verfasser: Maines, Laureen A., Peffer, Sean A., Sprinkle, Geoffrey B.
Format: Online-Aufsatz
Sprache:English
Veröffentlicht: 2005
Zugriff auf das übergeordnete Werk:The Accounting Review
Schlagworte:Compensation Discretion Subjective Performance Evaluation Double-Sided Moral Hazard Business Behavioral sciences Economics Mathematics Applied sciences
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520 |a Employment relationships provide fertile ground for both employee and employer opportunism. Employers worry about whether employees will devote sufficient effort to work, and employees are concerned about whether employers will compensate them appropriately. In this paper, we examine whether employer discretion over the size of the total employee compensation pool and the allocation of this pool among employees influences employee and employer opportunism. The results of our experiment indicate that firm output and employees' compensation are greater when the employer does not have discretion over total employee compensation, but does have discretion over the allocation of total compensation. We find that the employer's residual profit increases with discretion over the allocation of compensation among employees; however, we find no effect on residual profit of the employer's discretion over the total amount of employee compensation. Our results suggest that firms benefit from a compensation contract that establishes total employee compensation as a predetermined function of public, aggregate measures such as accounting income, but provides the employer at least some discretion to allocate this compensation using private information. However, our results caution that employees and employers may not have similar preferences for the degree of employer discretion over the determination of total employee compensation. 
540 |a Copyright 2005 American Accounting Association 
650 4 |a Compensation 
650 4 |a Discretion 
650 4 |a Subjective Performance Evaluation 
650 4 |a Double-Sided Moral Hazard 
650 4 |a Business  |x Business administration  |x Human resources  |x Employee compensation 
650 4 |a Behavioral sciences  |x Human behavior  |x Opportunistic behavior 
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650 4 |a Business  |x Accountancy  |x Financial accounting  |x Business revenue  |x Revenue measures  |x Total revenue 
650 4 |a Behavioral sciences  |x Human behavior  |x Social behavior  |x Group behavior  |x Group dynamics  |x Group processes  |x Group performance 
650 4 |a Mathematics  |x Applied mathematics  |x Statistics  |x Applied statistics  |x Statistical results  |x Statistical properties  |x Statistical significance 
650 4 |a Business  |x Business administration  |x Human resources  |x Employee motivation 
650 4 |a Business  |x Accountancy  |x Financial accounting  |x Business revenue  |x Revenue measures  |x Average revenue 
650 4 |a Applied sciences  |x Engineering  |x Control engineering  |x Control systems 
650 4 |a Business  |x Business economics  |x Commercial production  |x Production resources  |x Resource management  |x Time management  |x Leisure time 
655 4 |a research-article 
700 1 |a Maines, Laureen A.  |e verfasserin  |4 aut 
700 1 |a Peffer, Sean A.  |e verfasserin  |4 aut 
700 1 |a Sprinkle, Geoffrey B.  |e verfasserin  |4 aut 
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