The behavioral agency theory: a general approach towards a contingent understanding of the pay-performance relationship

Sammanfattning: In this thesis the pay performance relationship is discussed within the field of executive remuneration. A topic that received a lot of attention during the financial crisis and times of economic recession. The starting point of this is a broken pay setting process, where existing neoclassical theory is highly divided in providing explanations for the pay performance relationship. A rather new theory, called the behavioral agency theory, provides a new perspective on the pay performance debate and argues for a rather contingent approach. In this paper the selected underlying assumptions of the behavioral agency theory were tested within a European context. The index used to select the companies is the Eurostoxx50 index. The underlying assumptions are the effects of loss averse behavior by principals, agent motivation and agent time preferences. Significant results were found in supporting the loss averse behavior by principals and Agent motivation. The agent time preferences could not be explained by the selected method.