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[Excerpt] Compensation is at the core of any employment exchange (Milkovich & Newman, 1993; Simon, 1951). It is probably the most basic reason people agree to become employees and it serves as a defining characteristic of any employment relationship (March & Simon, 1958). Recently, managers have been bombarded with a profusion of ways to pay employees. There is team-based pay, broad-banding, pay at risk, paying for competencies, paying for skills, and even "The New" pay. Understanding which of these have the potential to add value and which are relatively more effective is a tough task, like untying the Gordian knot. Rather than simply cutting through the problem (Alexander the Great's tack), managers often seek guidance from research. Yet, researchers have also been bombarded - not just with new practices, but also with new theories. Included in this theoretic barrage is agency theory, tournament models, contingency theory, institutional theory, procedural justice, political influence theory, organizational demography, resource dependency, psychological contracts, and the resource-based view of the firm. The list seems almost endless. If Lord Keynes is correct that theories drive practical peoples' decisions, understanding which of these theories is useful and which is not is important for both compensation researchers and practical decision makers.


Suggested Citation
Bloom, M. C. & Milkovich, G. T. (1995). Issues in managerial compensation research (CAHRS Working Paper #95-24). Ithaca, NY: Cornell University, School of Industrial and Labor Relations, Center for Advanced Human Resource Studies.