[go: up one dir, main page]

IDEAS home Printed from https://ideas.repec.org/p/sef/csefwp/244.html
   My bibliography  Save this paper

Perks as Second Best Optimal Compensations

Author

Listed:
Abstract
The finance literature views perks either as productivity enhancing expenditures or as a result of poor managerial control by shareholders. Using a corporate jet to attend a business meeting may be justified because of the returns generated for the firm; but flying on the same jet to reach a vacation resort reflects a misappropriation of the firm’s resources by the manager. Our paper challenges this view. We argue that complementarity between leisure and wages creates difficult incentive problems, because the bonuses or stock options that reward success increase the marginal disutility of effort. In such a context, we show that whenever there exist commodities (‘perks’) that are substitute to leisure (or even less complementary to leisure than money), the optimal incentive scheme involves overprovision of such commodities, in the sense that the agent should consume more of them that she would elect to, should she be given a choice between money and perks at the current market prices. This conclusion is valid even when perks must be provided independently of the manager’s performace. Finally, we discuss the role of governance by introducing manipulations a la Peng and Röell (2006), and show that, in contrast with standard intuition, perks are used even when governance is perfect, and poorer governance may result in less perks being offered to the agent.

Suggested Citation

  • Alberto Bennardo & Pierre-André Chiappori & Joon Song, 2010. "Perks as Second Best Optimal Compensations," CSEF Working Papers 244, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:244
    as

    Download full text from publisher

    File URL: http://www.csef.it/WP/wp244.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alex Edmans & Xavier Gabaix, 2011. "Tractability in Incentive Contracting," The Review of Financial Studies, Society for Financial Studies, vol. 24(9), pages 2865-2894.
    2. ABATEMARCO, Antonio & BENNARDO, Alberto, 2018. "Communication Costs and Incentives to Acquire Soft and Hard Knowledge," CELPE Discussion Papers 157, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    3. Alessandro Fedele & Luca Panaccione, 2020. "Moral hazard and compensation packages: does reshuffling matter?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(1), pages 223-241, July.
    4. Gabaix, Xavier & Sannikov, Yuliy & Edmans, Alex & Sadzik, Tomasz, 2009. "Dynamic Incentive Accounts," CEPR Discussion Papers 7497, C.E.P.R. Discussion Papers.
    5. Alessandro Fedele & Luca Panaccione, 2015. "Pay package reshuffling and managerial incentives: A principal-agent analysis," BEMPS - Bozen Economics & Management Paper Series BEMPS28, Faculty of Economics and Management at the Free University of Bozen.

    More about this item

    Keywords

    Perks; Moral Hazard; Incentives; Second Best;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:244. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Maria Carannante (email available below). General contact details of provider: https://edirc.repec.org/data/cssalit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.