2004
Volume 32, Issue 1
  • ISSN: 0169-2216
  • E-ISSN: 2468-9424

Abstract

The counterproductive effects of the Law normalization top incomes in the Netherlands

On January 1, 2013, the Dutch Parliament passed the so-called Wet normering topinkomens (WNT), a regulation to limit the rising salaris of topmanagers in the (semi)public sector. This article addresses the question whether or not this regulation will succeed in achieving this objective an what side effects one could expect. We argue that answering this question requires a more detailed analysis of the regulation's behavioral implications. We sketch the assumptions of three behavioral theories that until now have been used to explain the development of CEO compensation in the private sector: efficient market, managerial power, and, more recently, relational signaling theory. Efficient market accounts predicts a possible brain drain (assuming that labor market segments are porous). Managerial power explanations suggest that the regulation will achieve its objective. Interestingly, relational signaling theory argues that the regulation affect the relations within the board. The reason is that cooperation between the board and a top executive requires a relation of mutual interpersonal trust. Costly and credible relational signals are essential to build and maintain such trust relations. An above market wage premium represents a powerful relational signal that establishes this relation and affect how boards function in the near future. Without this tool, the relations between the board and the executive will be more complicated.

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/content/journals/10.5117/2016.032.001.005
2016-03-01
2022-01-21
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