Non-cash Compensation with Production Externality: The Effects of an Agent’s Private Information and Market Access

Payment in terms of goods and services has been used extensively in practice. This paper considers remuneration in terms of a good that has productive benefits. It investigates the effects of the agent’s private pre-contract information relating to the productive benefits of the good and the effects of the agent’s market access on the use of non-cash compensation and cash incentive pay. The findings imply that reduced use of cash incentives is not necessarily a sign of weak corporate governance and that productive non-cash compensation should also be considered in empirical work investigating the use of cash incentive pay.