nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2012‒07‒14
fourteen papers chosen by
Tommaso Reggiani
University of Cologne

  1. Part-time employment and human capital development. By Nelen, Annemarie Cornelia
  2. CEO pay and the market for CEOs By Antonio Falato; Dan Li; Todd Milbourn
  3. Extra Status and Extra Stress: Are Promotions Good for Us? By Johnston, David W.; Lee, Wang-Sheng
  4. Optimal Compensation Structure in Consumer Cooperatives under Mixed Oligopoly By Michael Kopel; Marco A. Marini
  5. Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers By Shawn Cole; Martin Kanz; Leora Klapper
  6. The incidence and wage effects of overeducation using the worker’s self-assessment of skill utilization By Marco PECORARO
  7. Do cooperative enterprises create social trust? By Sabatini, Fabio; Modena, Francesca; Tortia, Ermanno
  8. Performance-Based Compensation and Firm Value: Experimental evidence By Glenn Pfeiffer; Timothy Shields
  9. Stock Market Tournaments By Emre Ozdenoren; Kathy Yuan
  10. Joint Liability vs. Individual Incentives in the Classroom. Lessons from a Field Experiment with Undergraduate Students By Cid, Alejandro; Cabrera, José María
  11. Peer Salaries and Employee Satisfaction in the Workplace By Mumford, Karen A.; Smith, Peter N.
  12. Cost Incentives in European Football By Feddersen, Arne; Humphreys, Brad; Soebbing, Brian
  13. Self-Rewards and Personal Motivation By Alexander K. Koch,; Julia Nafziger; Anton Suvorov; Jeroen van de Ven
  14. A Theory of Corporate Boards and Forced CEO Turnover By Thomas J. Chemmanur; Viktar Fedaseyeu

  1. By: Nelen, Annemarie Cornelia (Maastricht University)
    Date: 2012
  2. By: Antonio Falato; Dan Li; Todd Milbourn
    Abstract: Competitive sorting models of the CEO labor market (e.g., Edmans, Gabaix and Landier (2009)) predict that differences in CEO productive abilities, or "talent", should be an important determinant of CEO pay. However, measuring CEO talent empirically represents a major challenge. In this paper, we document reliable evidence of pay for CEO credentials and argue that the evidence is consistent with models of the CEO labor market. Our main finding is that boards' compensation decisions reward several reputational, career, and educational credentials of CEOs, with newly-appointed CEOs earning a 5 percent ($280,000) total pay premium for each decile improvement in the distribution of these credentials. Consistent with boards using credentials as publicly-observable signals of CEO abilities, we show that pay for credentials displays key cross-sectional features predicted by theory, such as convexity in credentials and complementarity with firm size. Our main finding is robust to a battery of identification tests that address selectivity and endogeneity concerns, including instrumental variables estimates and controlling for firm and CEO fixed effects. We also show that credentials capture variation in CEO human capital that is different from lifetime work experience, and are positively related to long-term firm performance and board monitoring, which helps to distinguish our results from alternative stories based on CEO general human capital, hype, and entrenchment. Overall, our findings suggest that sorting considerations in the CEO labor market are an important determinant of CEO pay. Our results also suggest that the rise in CEO pay over the last decades may owe at least in part to a rise in the CEO talent premium.
    Date: 2012
  3. By: Johnston, David W. (Monash University); Lee, Wang-Sheng (Deakin University)
    Abstract: Promotions ordinarily involve higher wages and greater privileges; but they also often involve increased responsibility, accountability and work hours. Therefore, whether promotions are good for workers' wellbeing is an empirical question. Using high-quality panel data we estimate pre- and post-promotion effects on job attributes, physical health, mental health and life satisfaction, in an attempt at answering this question. We find that promotions substantially improve job security, pay perceptions and overall job satisfaction in the short term, and that promotions have short and longer term effects on job control, job stress, income and hours worked. However, despite these large effects on job attributes, we find that promotions have negligible effects on workers' health and happiness. Only mental health seems affected, with estimates suggesting significant deterioration two years after receiving a promotion. Thus, it seems the additional stress involved with promotions eventually outweighs the additional status, at least for the average worker.
    Keywords: promotion, status, stress, job satisfaction
    JEL: I0 I31 J62
    Date: 2012–06
  4. By: Michael Kopel (Institute of Organization and Economics of Institutions, University of Graz); Marco A. Marini (Department of Computer, Control and Management Engineering, Sapienza Università di Roma)
    Abstract: The main aim of this paper is to derive properties of an optimal compensation scheme for consumer cooperatives (Coops) in situations of strategic interaction with profitmaximizing firms (PMFs). Our model provides a reason why Coops are less prone than PMFs to pay variable bonuses to their managers. We show that this occurs under price competition when in equilibrium the Coop prefers to pay a straight salary to its manager whereas the profit-maximizing rival adopts a variable, high-powered incentive scheme. The main rationale is that, due to consumers’ preferences, a Coop is per se highly expansionary in term of output and, therefore, does not need to provide strong strategic incentives to their managers to expand output aggressively by undercutting its rival.
    Date: 2012
  5. By: Shawn Cole (Harvard Business School, Finance Unit); Martin Kanz (World Bank); Leora Klapper (World Bank)
    Abstract: This paper uses a series of experiments with commercial bank loan officers to test the effect of performance incentives on risk-assessment and lending decisions. We first show that, while high-powered incentives lead to greater screening effort and more profitable lending, their power is muted by both deferred compensation and the limited liability typically enjoyed by credit officers. Second, we present direct evidence that incentive contracts distort judgment and beliefs, even among trained professionals with many years of experience. Loans evaluated under more permissive incentive schemes are rated significantly less risky than the same loans evaluated under pay-for-performance.
    Keywords: loan officer incentives, banking, emerging markets
    JEL: D03 G21 J22 J33 L2
    Date: 2012–07
  6. By: Marco PECORARO (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and SFM, Université de Neuchâtel)
    Abstract: This paper proposes an improved concept of educational mismatch that combines a statistical measure of over- and undereducation with the worker’s self-assessment of skill utilization. In that way, we account for worker heterogeneity in skills whose omission may generate biased estimates of the incidence and wage effects of over- and undereducation. Using cross-sectional data from the Swiss Household Panel survey, the empirical analyses provide the following results: (a) at least two third of the statistically defined overeducated workers perceive their skills as adequate for the job they hold and are then apparently overeducated; (b) among the overeducated with a given schooling level, the wage return to education is lower for those who are mismatched in skills than for those who are not; (c) apparently overeducated workers have similar wage returns compared to others with the same schooling level but who are statistically matched. These findings confirm that most of those overeducated according to the statistical measure have unobserved skills that allow them to work in a job for which they are well-matched.
    Keywords: Educational mismatch, skill utilization, wages
    Date: 2012–06–09
  7. By: Sabatini, Fabio; Modena, Francesca; Tortia, Ermanno
    Abstract: This paper contributes to the literature by carrying out the first empirical investigation into the role of different types of enterprises in the creation of social trust. Drawing on a unique dataset collected through the administration of a questionnaire to a representative sample of the population of the Italian Province of Trento in March 2011, we find that cooperatives are the only type of enterprise where the work environment fosters the social trust of workers.
    Keywords: cooperative enterprises; nonprofit organizations; trust; social capital; intrinsic motivations; inclusive governance; work organization
    JEL: P13 Z1 Z13 L31 L33
    Date: 2012–07–03
  8. By: Glenn Pfeiffer (Argyros School of Business and Economics, Chapman University, USA); Timothy Shields (Argyros School of Business and Economics, Chapman University, USA)
    Abstract: Motivated by research reporting positive price reactions to adoption of performance-based compensation plans, we examine price reactions to compensation contracting in experimental markets. The design allows us to manipulate variables separately and study issues of adverse selection (sorting) and moral hazard (incentives). We find that managers select contracts based on their private information, and that information is conveyed to the market by the choice of compensation contract and reflected in price. Additionally, we find that managers do not always exert costly effort in spite of favorable incentives to do so (shirking). As a result, the market is skeptical of incentive benefits. Thus, while we find evidence of overbidding in some treatments, we find that market prices are consistent with private information revelation but undervalue incentive benefits.
    Keywords: compensation, experimental markets, sorting, incentives
    JEL: C92 D82 G12 J33 M52
    Date: 2012
  9. By: Emre Ozdenoren; Kathy Yuan
    Abstract: We propose a new theory of suboptimal risk-taking based on contractual externalities. We examine an industry with a continuum of _rms. Each _rm's manager exerts costly hidden e_ort. The productivity of e_ort is subject to systematic shocks. Firms' stock prices reect their performance relative to the industry average. In this setting, stock-based incentives cause complementarities in managerial e_ort choices. Externalities arise because shareholders do not internalize the impact of their incentive provision on the average e_ort. During booms, they over-incentivise managers, triggering a rat-race in e_ort exertion, resulting in excessive risk relative to the second-best. The opposite occurs during busts.
    Date: 2012–07
  10. By: Cid, Alejandro; Cabrera, José María
    Abstract: We evaluate the impact of joint-liability incentives in the classroom using a randomized field experiment. The instructor design groups of three students in the classroom and provides a premium to their homework's grade only if all three members of the group accomplish some requirements. To isolate the joint liability effect from selfish motivations, we design also an individual incentives treatment. We find that joint-liability incentives impact positively on the grades accomplished in homework and midterm exams both in the experimental courses and in the other courses taken by the students in the semester. Though the positive average effect seems to disappear in the final exams, the overall impact of joint-liability incentives on the academic achievements in the semester is still positive. A drawback of this program is a decrease in the satisfaction with classmates. The significant effectiveness of the peer monitoring developed by the joint liability of group incentives provides novel implications for the design of the grading policies in the classroom and for other social settings where incentives may be based in peer monitoring or joint liability.
    Keywords: field experiment; randomization; education; joint liability; student incentives
    JEL: I20
    Date: 2012
  11. By: Mumford, Karen A. (University of York); Smith, Peter N. (University of York)
    Abstract: We explore the relationship between reported job satisfaction and own wage, relative wage and average comparison group wage; allowing for asymmetry in these responses across genders. We find that the choice of relevant comparison group is affected by gender in Britain; men display behaviour characteristic of competitiveness whilst women do not.
    Keywords: job satisfaction, earnings, gender, segregation, workplace
    JEL: J3 J7 J28
    Date: 2012–06
  12. By: Feddersen, Arne (University of Southern Denmark); Humphreys, Brad (University of Alberta, Department of Economics); Soebbing, Brian (Louisiana State University)
    Abstract: We examine the effects of financial incentives on effort supplied by football clubs in European domestic leagues. Tournament theory predicts that the amount of effort supplied varies with returns to effort. We analyze variation in 31,746 domestic league match outcomes in ten European leagues over eleven seasons, exploiting the actual standings on the league table to generate variables reflecting incentives to provide effort in each match. Results from ordered logit regressions indicate that the effort implied by observed match outcomes support the predictions of tournament theory in this setting; clubs supply more or less effort in response to changes in incentives.
    Keywords: effort supply; football; UEFA Champions League
    JEL: J01 J33 L83
    Date: 2012–07–01
  13. By: Alexander K. Koch, (Department of Economics and Business, Aarhus University, Denmark); Julia Nafziger (Department of Economics and Business, Aarhus University, Denmark); Anton Suvorov (CEFIR and New Economic School); Jeroen van de Ven (University of Amsterdam and Tinbergen Institute)
    Abstract: Self-administered rewards are ubiquitous. They serve as incentives for personal accomplishments and are widely recommended to increase personal motivation. We show that in a model with time-inconsistent and reference-dependent preferences, self-rewards can be a credible and effective tool to overcome self-control problems. We also characterize the type of self-rewards that can be used, such as vice goods and virtue goods, and analyze which types of goods will be preferred by the individual.
    Keywords: Quasi-hyperbolic discounting, reference-dependent preferences, loss aversion, self-control, self-rewards, goals
    JEL: D03 D81 D91
    Date: 2012–07–04
  14. By: Thomas J. Chemmanur; Viktar Fedaseyeu
    Abstract: We develop a theory of corporate boards and their role in forcing CEO turnover. We consider a firm with an incumbent CEO of uncertain management ability and a board consisting of a number of directors whose role is to evaluate the CEO and fire her if a better replacement can be found. Each board member receives an independent private signal about the CEO's ability, after which board members vote on firing the CEO (or not). If the CEO is fired, the board hires a new CEO from the pool of candidates available. The true ability of the rm's CEO is revealed in the long run; the firm's long-run share price is determined by this ability. Each board member owns some equity in the firm, and thus prefers to fire a CEO of poor ability. However, if a board member votes to fire the incumbent CEO but the number of other board members also voting to fire her is not enough to successfully oust her, the CEO can impose significant costs of dissent on him. In this setting, we show that the board faces a coordination problem, leading it to retain an incompetent CEO even when a majority of board members receive private signals indicating that she is of poor quality. We solve for the optimal board size, and show that it depends on various board and rm characteristics: one size does not fit all firms. We develop extensions to our basic model to analyze the optimal composition of the board between firm insiders and outsiders and the effect of board members observing imprecise public signals in addition to their private signals on board decision-making. Finally, we develop a dynamic extension to our basic model to analyze why many boards do not fire CEOs even when they preside over a signicant, publicly observable, reduction in shareholder wealth over a long period of time. We use this dynamic model to distinguish between the characteristics of such boards from those that fire bad CEOs proactively, before significant shareholder wealth reductions take place.
    Date: 2012

This nep-hrm issue is ©2012 by Tommaso Reggiani. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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