| His righteousness has prompted 250 years of consequent righteousness. The key question that remains unanswered is whether Clive was just plain corrupt or whether the huge fortune he garnered "" close to half a million pounds "" simply a perk of office? |
| The answer depends on how the two terms are defined. In a recent paper*, Raghuram G Rajan and Julie Wulf have examined the issue of perks in the US and why firms offer them. |
| The term "offer", in my view, constitutes the crucial difference. If you take what the firm offers as official policy, it is a perk; if you help yourself, it is corruption. That much seems clear enough, but what if those who make the offers include themselves in the offer? |
| The question Rajan and Wulf ask is: why do some firms tend to offer executives a variety of perks while others offer none at all? Their answer: "Perks are offered most in situations where they are likely to enhance managerial productivity." Clive's marginal productivity to the East India Company was almost infinity. |
| This view of perks as a reward for marginal productivity is contrary to the standard view, which is that perks are simply a means of unjustified rewards or "a form of agency or private benefit and a way for managers to misappropriate some of the surplus the firm generates." |
| The evidence for this, say the authors, is at best, mixed. They also say that firms that are subject to more external monitoring should have fewer perks. This does not work in the case of India, though, neither for the public sector which is monitored closely, nor in the private sector over which the Central Board of Direct Taxes keeps a tight watch. |
| The productivity argument is interesting because the authors say that perks tend to enhance it. "More productive employees at the top of a firm's hierarchy are more likely to get perks." |
| So, "the narrow implication of these findings is that a blanket indictment of the use of perks is unwarranted. The broader implication is that there are very interesting aspects of organisational design that can be uncovered by examining non-monetary forms of compensation more carefully." |
| But, as I said, the problem of who judges these things is important. The authors do not examine the moral hazard issue at all, which is the central weakness of the paper. |
| Another issue that the paper does not tackle is the evolution of a perk into a right. This is a common phenomenon not just in the government and the public sector but also in many private sector firms. |
| Typically, instead of being person specific, the perk becomes job specific. A typical example is office cars for everyone above a certain level, regardless of what post the person is in. This suggests that perks are a proof of status, rather than productivity. The authors provide a detailed discussion of status and perks but do not say how you can call something a perk if so many get it. |
| The authors have also not examined what is perhaps the most compelling reason for perks: tax saving for the employee. Their discussion of this aspect is perfunctory. |
| "A rationale for the firm to pay through perks rather than through pay "" the after-tax cost to employees of an undervalued perk is lower than if the employees had to pay for them out of salary." |
| The truth is that however much perks may be defended, they are discretionary payments to a favoured few "" dollars or dachas, it doesn't matter "" and discretion, by definition, does not allow itself to be subjected to the sort of econometric analysis the authors have attempted. |
| Finally, if perks are to be seen as motivators, then what better than Napoleon's theory? He was amazed at what a decoration would do to a soldier. |
| "If I had enough ribbon, I could conquer the world," he said. |
| *Are Perks Purely Managerial Excess? NBER Working Paper No. 10494, May 2004 |
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