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Higher Pay, Less Corruption Scandals? Evidence from City Manager Compensation in California

Abstract: I study determinants and implications of city managers' annual salary in the state of California from 2011 to 2016. Using a large and recent dataset, I find that excess city manager annual salary is associated with a lower likelihood of having corruption-related scandals and future questioned costs. In additional analyses, I examine the impact of the city council on the relation between excess annual salary and corruption and document that a larger council constrains the potential unethical behaviors of city managers and serves as more effective monitors. Finally, I document that excess annual salary is associated with more efficient daily operations; city managers with a high annual salary also have a lower likelihood of being involuntarily terminated by the city council and have open-ended and salary reduction contractual terms in compensation agreements.

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