Abstract

https://ssrn.com/abstract=2419099
 


 



Pay Harmony? Social Comparison and Performance Compensation in Multi-Business Firms


Claudine Madras Gartenberg


New York University (NYU) - Leonard N. Stern School of Business

Julie Wulf


Harvard Business School

December 22, 2016

Harvard Business School Strategy Unit Working Paper No. 13-041

Abstract:     
Our study presents evidence that social comparison influences both the level of pay and the degree of performance sensitivity within firms. We report pay patterns among division managers of large, multi-business firms over a fourteen-year period. These patterns are consistent with employees comparing pay against both their peers (horizontal comparison) and the CEO (vertical comparison) within their firm. Horizontal comparison also appears to reduce pay-performance sensitivity, in accord with prior theory proposing that performance pay can lead to perceived pay inequity among employees. Taken together, our evidence suggests that agency costs and social comparison jointly influence pay within firms. The evidence also supports the notion that managers of multi-business firms are constrained in the degree to which they can incentivize employees, given the firm-imposed reference group.

Number of Pages in PDF File: 35

Keywords: Executive Compensation, Pay-for-Performance, Internal Labor Markets, Peer Comparison, Firm Geography

JEL Classification: J33, J44, M12, M52


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Date posted: April 3, 2014 ; Last revised: January 13, 2017

Suggested Citation

Gartenberg, Claudine Madras and Wulf, Julie, Pay Harmony? Social Comparison and Performance Compensation in Multi-Business Firms (December 22, 2016). Harvard Business School Strategy Unit Working Paper No. 13-041. Available at SSRN: https://ssrn.com/abstract=2419099 or http://dx.doi.org/10.2139/ssrn.2419099

Contact Information

Claudine Madras Gartenberg
New York University (NYU) - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States

Julie M. Wulf (Contact Author)
Harvard Business School ( email )
Harvard Business School
Boston, MA
United States

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