Reflections on the generalization of agency theory: Cross-cultural considerations

Agency theory assumes that employees and employers have different goals, act in a self-interested manner, and are willing to assume varying degrees of risk. In this paper, we argue that cultural differences may attenuate those assumptions and thereby temper agency theory predictions. Culture may align goals between employers and employees, change a company's preference for behavior- versus outcome-based pay, require higher incentives before employees will accept outcome-based pay, and lower the moral hazard concerns associated with outcome-based pay. Based on those arguments, we develop propositions that can be tested empirically.