Monetary Reference Points of Managers - Panel Data Evidence from the German Chemical Sector

• Applicant: Professor Dr. Christian Grund
• Subject Area: Economic Policy, Applied Economics ; Accounting and Finance
• Term: from 2013 to 2016
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 244439780

It is now more and more established in (behavioral) personnel economics that in many situations individuals do not care exclusively for their own monetary outcome in the sense of the homo oeconomicus, but also take into account certain monetary reference points. Possible reference points are marked by the own status quo or some social comparisons with peers. Employees may then take into consideration their own wage of the previous period or the wage of other employees into consideration. Own wage increases/decreases as well as wage differences compared to colleagues or employees of other firms are then perceived as deviations from these reference points and are relevant for the utility from work.Previous empirical contributions focus on either the status quo or social comparisons of individuals. They are also limited to single wage components. In this project we want to address the question, which monetary reference points matter most for managers' utility. Making use of a representative unique panel data set of executive staff of the German chemical industry, we measure the perceived utility from a job with the reported job satisfaction. In contrast to previous work, we examine not only one but both of the two types of reference points. We also examine the relevance with respect to different wage components such as the fixed salary, the bonus and stock (options). We distinguish between two levels of social comparisons (within firms and with other employees in the whole industry) and investigate possible differences of level relevance across wage components. We expect that the results will be scientifically significant for future development of theory in the field of behavioral (personnel) economics. Directions for the detailed use of certain reference points of certain wage components can be derived for the construction of future theoretical models. The project is also practically relevant as the results will be used for recommendations regarding the pay policies of firms.

• DFG Programme: Research Grants