Question

According to the model studied in class, if an employer decides to offer a potential employee...

According to the model studied in class, if an employer decides to offer a potential employee a compensation package which has both a salary and perquisites, how should the employer choose the level of perquisites to give the employee?

Cannot answer this question without more information.

They should offer the employee his reservation salary plus a perquisit package that has additional value.

They should offer the employee more than his reservation salary plus a perquisit package that has additional value.

They should offer the employee perquisites valued at the amount of his reservation salary minus the value of the perquisits.

Business   Economics   
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Answer #1

The employer pays the employee because they are working on behalf of the employer(Principal). The compensation paid is for exchange of resources.

Every employer has an objective thus they pay the employee (agent) in order to align the objective of the agents to the objectives of the firm. Therefore, the perquisite must act as a tool to motivate the employees.

Therefore, the firm should pay perquisite over and above the reservation salary.  

They should offer the employee his reservation salary plus a perquisit package that has additional value.

Not sure which model is talked about in the question. I have answered it on the basis of human characteristics.

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