TITLE:
A Model of Progressive Employee Compensation and Superstardom
AUTHORS:
Susan Hamlen, William Hamlen, Lawrence Southwick
KEYWORDS:
Progressive Salaries; Managers; Superstardom
JOURNAL NAME:
Theoretical Economics Letters,
Vol.3 No.3A,
June
13,
2013
ABSTRACT: This paper identifies the condition leading
to a progressive salary situation wherein the elasticity of compensation with
respect to ability is greater than unity, i.e.,
a small percentage advantage in ability results in a disproportional increase
in compensation. This analysis also helps explain the “superstar phenomenon”
made famous by Rosen (1981). Two assumptions are made. The first is that there
is a generalized Cobb-Douglas type of production function wherein different
hierarchies of employees of different abilities are viewed as distinct inputs.
The second is that the distribution of ability is bell-shaped or approximately
normally distributed, and can be approximated by a Poisson distribution. The
model is applied using average outgoing salaries of MBA students from different
universities compared to their average test scores.