Crowding Theory and Executive Compensation
-
Nina Walton
Abstract
Payment for performance is widely embraced as a key component of any well-designed executive compensation package. There is a price to be paid, however, for the heavy reliance on incentives as a way of controlling agent behavior. In particular, evidence exists demonstrating that incentives can crowd out an agent’s social preferences towards her principal. Social preferences are pro-social tendencies of people to do things for others for reasons such as fairness, reciprocity, altruism, and ethical or moral beliefs. The use of incentives in compensation can result in self-interested agents. When crowding out occurs, in order to elicit the desired level of performance, principals may need to increase the level of incentive employed. Crowding out therefore provides an additional account for rising levels of executive compensation. In addition, crowding theory can provide a helpful explanation for the tension around the U.S. government’s reaction to preexisting banker incentive contracts during the 2008 financial crisis.
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Artikel in diesem Heft
- Article
- Introduction
- Governments as Investors of Last Resort: Comparative Credit Crisis Case-Studies
- Bank Nationalizations of the 1930s in Italy: The IRI Formula
- Crowding Theory and Executive Compensation
- Why Power Companies Build Nuclear Reactors on Fault Lines: The Case of Japan
- Corporate Governance under State Control: The Chinese Experience
- The Unintended Consequences of State Ownership: The Brazilian Experience
- Can Company Disclosures Discipline State-Appointed Managers? Evidence from Greek Privatizations
- Hidden Government Influence over Privatized Banks
- State Intervention in Corporate Governance: National Interest and Board Composition
- Hidden Costs of Mandatory Long-Term Compensation
- Global Investment Regulation and Sovereign Funds
Artikel in diesem Heft
- Article
- Introduction
- Governments as Investors of Last Resort: Comparative Credit Crisis Case-Studies
- Bank Nationalizations of the 1930s in Italy: The IRI Formula
- Crowding Theory and Executive Compensation
- Why Power Companies Build Nuclear Reactors on Fault Lines: The Case of Japan
- Corporate Governance under State Control: The Chinese Experience
- The Unintended Consequences of State Ownership: The Brazilian Experience
- Can Company Disclosures Discipline State-Appointed Managers? Evidence from Greek Privatizations
- Hidden Government Influence over Privatized Banks
- State Intervention in Corporate Governance: National Interest and Board Composition
- Hidden Costs of Mandatory Long-Term Compensation
- Global Investment Regulation and Sovereign Funds
