| Abstract: | The motivation of individuals lies at the core of corporate governance. For CEOs much research has been directed at the linkage between pay and enterprise performance. The results, however, provide only weak support for the efficacy of profit-related pay. Herein we adopt a different perspective and test for the existence of efficiency wages in a mutual sector wherein the use of traditional control mechanisms is particularly problematic. Our empirical results support the hypothesis that efficiency wages do yield superior performance. We therefore conclude that efficiency wages are a much-needed tool of corporate governance in the mutual sector. Furthermore, as an incentive mechanism, efficiency wages do not require the observability of individual effort, thus they potentially provide an equitable incentive mechanism for all organizations. |
