Research Seminar “Does Relative Pay Matter when Setting Subordinate’s Compensation?An Experimental Approach”

2019-11-28 14:48:06


Dear students, faculty and staff,

Nazarbayev University Graduate School of Business invites you to Research Seminar “Does Relative Pay Matter when Setting Subordinate’s Compensation?An Experimental Approach” by Atanu Rakshit, Assistant Professor at NUGSB and  Jonathan R. Peterson, Assistant Professor of Economics at Louisiana Tech University. The paper abstract is available here.

WHEN: Friday, November 29, 13:00 – 14:30

WHERE: Block C3 (GSB/GSPP Building), 3rd floor, #3038

 DESCRIPTION: A key challenge for institutions is to get employees to act in the best interest of their employer, rather than themselves. In general, creative firms use various payment schemes to align the objectives of the employee to the employer (see Garen (1994), Haubrich (1994), Agarwal and Samwick (2002), Garvey and Milbourn (2002) and Jin (2002)). In this context, one key responsibility of top managers in a firm is to attract, train, evaluate and set compensation for their subordinates.

In this paper we explore the possibility that, unlike other tasks, setting compensation levels for subordinates can have a direct effect on a manager’s utility through his/her taste for fairness. If their fairness concerns are strong enough, a manager may systematically make decisions that are costly to the firm, and such decisions can run contrary to the institution’s objectives. Specifically, we ask whether the relative standing of an agent (say, higher or lower in an organizational hierarchy), where “position” is already defined in terms of decision rights, plays a part in in what an agent perceives as a “fair” or “desirable” split. If indeed one’s relative standing within a hierarchy amplifies such positional concerns, then that has direct bearing on a multitude of factors within an organization, from designing of ‘fair’ compensation schemes to allocation of decision rights.

We use experimental approach, both in the laboratory as well through “artefactual” experiments the field, where subjects play a series of modified dictator games to reveal their positional concerns and fairness preferences. In the laboratory, hierarchy based identity will be made salient by real efforts and windfall allocation of decision rights. In the field, we will be using subjects from specific occupation where hierarchy is strongly salient. We expect our study to reveal some key insights about individual choice and fairness concerns within hierarchy, and their implications for compensation setting.


Dr. Atanu Rakshit received his PhD in Economics and M.S. in Applied Economics from Virginia Polytechnic Institute and State University, and his research and teaching interests are in Applied Econometrics, Public Economics, and International Macro-Finance. Atanu’s current research is focused on application of non-linear time series Econometrics, the impact of fiscal policy on interest rates and hierarchy in organizations.

Prior to commencing his graduate studies in the U.S., Atanu worked as a Project Associate on a Central Statistical Organization, Govt. of India project on Natural Resource Accounting in India (2003-2005). Atanu has many years of experience consulting and working with international developmental agencies, academia, sovereign wealth funds and public enterprises. Before joining the Graduate School of Business at NU, Atanu was a Visiting Assistant Professor of Economics at the Williams School of Commerce, Politics and Economics at Washington and Lee University, USA. Atanu speaks Bengali, Hindi, English and basic Mandarin and Russian.

Jonathan Peterson earned his PhD in Economics at Cornell University. His research interests are applied microeconomic theory in a variety of fields Industrial Organization and Organizational Economics. He has published works in Rand Journal of Economics and Management Science.

His research interests include information asymmetries in the used car and labor markets and racial discrimination in the small business loan market.

Jonathan is an Assistant Professor of Economics at Louisiana Tech University. But has also worked as a postdoctoral fellow at The Johnson School of Business, assistant professor at the Faculty of Management, NRU Higher School of Economics, Moscow and at Nazarbayev University Graduate School of Business.