How Internal Transaction Costs Drive Compensation Schemes

41 Pages Posted: 15 Oct 2004

Date Written: October 2004


The literature on chief executive officers (CEOs) establishes that economic and sociological rationales are both essential to understand the level and structure of CEOs' compensation. Our thesis is that internal "transaction costs" or frictions override strictly economic criteria to determine pay levels and pay structures. We study mid-level jobs that have features strikingly similar to the CEO. We show that pay checks and their underlying structure follow counterintuitive patterns, as if the employer resorts to a third party (i.e., the customer base) to reduce employee discontent over pay. We also find that firms reward managers as if they have considerable value added.

Keywords: Compensation, salesforce compensation, transaction costs, international, taxes

JEL Classification: D23, H32, J33, M31

Suggested Citation

Rouzies, Dominique and Anderson, Erin and Coughlan, Anne T., How Internal Transaction Costs Drive Compensation Schemes (October 2004). Available at SSRN: or

Dominique Rouzies (Contact Author)

HEC Paris - Marketing ( email )

+33 1 3967 7207 (Phone)
+33 1 3967 7087 (Fax)

Erin Anderson

INSEAD - Marketing ( email )

Boulevard de Constance
Fontainebleau, 77305
+33 1 6072 4000 (Phone)
+33 1 6074 5500/01 (Fax)

Anne T. Coughlan

Kellogg School, Northwestern University ( email )

2211 Campus Drive
Evanston, IL 60208
United States
847-491-3522 (Phone)


Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics