The Interaction Of Implied Contracts And Organizational Turbulence With Managers Base Pay

Abstract

This study sampled 403 managers from 20 Fortune 500 companies to investigate whether there is a relationship between the type of implied contracts existing in an organization and the salary increases managers receive following periods of organizational turbulence. We hypothesized that after a period of turbulence, organizations which offer relational implied contracts to their managers (compared to transactional implied contracts) would reward these managers with larger base pay increases to compensate them for their loss of job security. A competing hypothesis based on traditional economic theory was also tested. The results support our hypotheses. We also examine the relation of implied contracts with base pay, regardless of the level of organizational turbulence.