Agency and Compensation: Evidence from the Hotel Industry

Journal of Law, Economics and Organization, Forthcoming.

35 Pages Posted: 11 Jul 2010 Last revised: 23 Apr 2021

See all articles by Matthew Freedman

Matthew Freedman

University of California, Irvine - Department of Economics

Renata Kosova

Imperial College London

Date Written: May 31, 2012

Abstract

We examine how agency problems in the workplace interact with compensation policies by taking advantage of the structure of the hotel industry, in which many chains have both company managed and franchised properties. As residual claimants on their properties’ profits, franchisees have stronger incentives to monitor employees than managers in company managed hotels. Exploiting this variation and using rich, longitudinal data on the hotel industry, we estimate differences in wages and human resource practices across company managed and franchised hotels within chains as well as within individual hotels as they change organizational form. Our results suggest that the timing of pay and the propensity to use performance-based incentives relate to the extent of agency problems within establishments.

Keywords: Agency, Compensation, Franchising, Firm Organizational Form, Services

JEL Classification: J31, J41, L23, L83

Suggested Citation

Freedman, Matthew and Kosova, Renata, Agency and Compensation: Evidence from the Hotel Industry (May 31, 2012). Journal of Law, Economics and Organization, Forthcoming., Available at SSRN: https://ssrn.com/abstract=1638327 or http://dx.doi.org/10.2139/ssrn.1638327

Matthew Freedman (Contact Author)

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

Renata Kosova

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

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