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The Governance of Not-for-Profit Organizations$
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Edward L. Glaeser

Print publication date: 2003

Print ISBN-13: 9780226297859

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226297866.001.0001

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Objective Functions and Compensation Structures in Nonprofit and For-Profit Organizations

Objective Functions and Compensation Structures in Nonprofit and For-Profit Organizations

Evidence from the “Mixed” Hospital Industry

Chapter:
(p.117) 4 Objective Functions and Compensation Structures in Nonprofit and For-Profit Organizations
Source:
The Governance of Not-for-Profit Organizations
Author(s):
Burcay Erus, Burton A. Weisbrod
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226297866.003.0005

This chapter examines the behavior of two forms of nonprofit organizations: religious nonprofit and secular nonprofit, as well as that of private for-profit (FP) firms, when they coexist in a mixed industry: hospitals. In an attempt to determine whether each type of nonprofit organization can be characterized by the same objective function as a for-profit firm, but recognizing the difficulty of observing objective functions, the reflections of objective functions in employee compensation structures are studied. The following hypotheses are tested: (a) NP organizations use weaker incentives than FPs when compensating their CEOs; (b) there are no differences—or, at most, smaller differences—in the incentive structures at FP and NP organizations for workers down the job ladder (middle managers and technical workers); and (c) exogenous tightening of fiscal constraints cause nonprofits to alter incentive structures to become more like for-profit firms. Overall, the findings are broadly consistent with the four hypotheses.

Keywords:   nonprofit organizations, religious nonprofit, secular nonprofit, private for-profit, hospitals, employee compensation, incentives

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