Agency and Compensation: Evidence from the Hotel Industry

We examine the relationship between employee supervision and compensation by taking advantage of the structure of the hotel industry, in which many chains have both company managed and franchised properties. Given that supervision is less rigorous at company managed establishments, we estimate differences in wages and human resource practices not only across company managed and franchised hotels within chains, but also within individual hotels as they change organizational form. While we cannot rule out the use of efficiency wages, our results suggest that agency problems affect the timing of pay and employers’ propensity to use performance-based incentives.