Compensation and incentives: practice vs. theory

Article Abstract:

A thorough understanding of internal incentive structures is critical to developing a viable theory of the firm, since these incentives determine to a large extent how individuals inside an organization behave. Many common features of organizational incentive systems are not easily explained by traditional economic theory - including egalitarian pay systems in which compensation is largely independent of performance, the overwhelming use of promotion-based incentive systems, the absence of up-front fees for jobs and effective bonding contracts, and the general reluctance of employers to fire, penalize, or give poor performance evaluations to employees. Typical explanations for these practices offered by behaviorists and practitioners are distinctly uneconomic - focusing on notions such as fairness, equity, morale, trust, social responsibility, and culture. The challenge to economists is to provide viable economic explanations for these practices or to integrate these alternative notions into the traditional economic model. (Reprinted by permission of the publisher.)

Human resource management, Compensation management, Incentives (Business)

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Beatrice: a study in the creation and destruction of value

Article Abstract:

This paper chronicles the history of the Beatrice company from its founding in 1891 as a small creamery, through its growth by acquisition into a diversified consumer and industrial products firm, and its subsequent leveraged buyout and sell-off. The paper analyzes the value consequences the firm's acquisition and divestiture policies, its organizational strategy, and its governance. The analysis sheds light on a number of issues in organization theory, strategy, and corporate finance, including the sources of value in diversifying acquisitions, the cost of over-centralization and weak corporate governance, and the mechanisms of value creation in the market for corporate control.

Analysis, Conglomerate corporations, Finance, Corporate finance, Beatrice Companies Inc.

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Managerial Entrenchment and Capital Structure Decisions

Article Abstract:

Capital structure decisions are examined in relation to managerial entrenchment in an empirical study of 434 firms based on data from 1984 to 1991. Topics include leverage in relation to managerial entrenchment, capital structure levels, sample selection, variables for analysis, regression results, and leverage changes in low- and high-leverage firms.

Statistical Data Included, Methods, Management, Leverage (Finance), Leverage, Capital

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