Compensation contracts: do agency theory assumptions predict negotiated agreements?

Article Abstract:

This study examined how the ability to monitor an agent's actions and environmental munificence affect compensation contracts in principal-agent dyads. In a laboratory experiment, we tested predictions based on both assumptions grounded in agency theory and an alternative perspective. In simulated munificent environments, inability to monitor fostered contracts that were contingent on outcomes, and agents received larger relative shares of dyadic earnings. In environments characterized by scarcity, the reverse was true. Our findings suggest that the agency model applies under conditions of munificence but fails under scarcity. (Reprinted by permission of the publisher.)

Research, Compensation management

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Employment contracts: the why, how and when

Article Abstract:

Unplanned hiring practices for executives may result in unexpected costs. Companies should observe legal measures which would protect them from executive malfeasance, misappropriation of trade secrets and diversion of inventions and patents. An employment contract or memo of understanding should cover items such as the employee's compensation, deferred compensation, stock option and retirement plans and terms of expense reimbursement. It prevents misunderstanding between employer and employee.

Interpretation and construction, Executives

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