Motivational Properties of Compensation Designs and their Impact on Executive Behaviour

This paper provides empirical evidence on the relationship between compensation types (salary, bonus, stock options, and shares) and the propensity of top executives to leave the organization in high and low discretion contexts. Drawing on the behavioural decision theory and behavioural economics it is hypothesized that agents attribute greater importance to fixed pay than to variable pay because fixed pay is directly tied to agents' standard of living while variable pay is perceived as windfall gain for "instant endowment". In the same vein, the paper provides empirical evidence on the "crowding out" of intrinsic motivation, norms of fairness and reciprocity by changes in monetary incentives. Finally, the paper explores whether the "crowding out"- effect is contingent on the discretion context and company performance.