When to ask for a raise
A hilarious finance paper (Hilarious to me, anyway) that tries to model bureaucratic inefficiency and paperwork as a method for tightly documenting employee output and thus improving efficiency during managerial turnover. Includes these gems:
“Of course, selling the firm to the manager would eliminate her incentive to deviate from value-maximizing actions. To rule out this uninteresting solution to the agency problem, we assume that the manager is credit constrained. The manager has to remain as an employee of the shareholders, who must impose an incentive scheme on the manager to prevent her from distorting the firmâs organizational design.”
“For any given organizational choice O, the manager will try to renegotiate whenever her expected salary is below {math formula I can’t paste}, a threshold that takes into account that the Board will optimally reset the employeeâs compensation contract in case of managerial turnover.”
