nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2016‒07‒23
eleven papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. CEO Pay and the Rise of Relative Performance Contracts: A Question of Governance? By Bell, Brian; Van Reenen, John
  2. Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance By Brice Corgnet; Joaquin Gomez-Minambres; Roberto Hernan-Gonzalez
  3. Human Capital and Development Accounting: New Evidence from Wage Gains at Migration By Todd Schoellman; Lutz Hendricks
  4. Labor Market Frictions, Human Capital Accumulation, and Consumption Inequality By Michael Graber; Jeremy Lise
  5. Motivation and sorting of human capital in open innovation By Sharon Belenzon; Mark Schankerman
  6. Workplace Design: The Good, the Bad, and the Productive By Michael Housman; Dylan Minor
  7. Employability practices in the healthcare sector: an evidence from Poland By Izabela Marzec
  8. What Role Did Management Practices Play in SME Growth Post-Recession? By Bryson, Alex; Forth, John
  9. Incentive Pay and Bank Risk-Taking: Evidence from Austrian, German, and Swiss Banks By Matthias EFING; Harald HAU; Patrick KAMPKÖTTER; Johannes STEINBRECHER
  10. Bank Regulation, CEO Compensation, and Boards By Kolm, Julian; Laux, Christian; Lóránth, Gyöngyi
  11. Social Comparisons of Wage Increases and Job Satisfaction By Grund, Christian; Rubin, Maike

  1. By: Bell, Brian; Van Reenen, John
    Abstract: Would moving to relative performance contracts improve the alignment between CEO pay and performance? To address this we exploit the large rise in relative performance awards and the share of equity pay in the UK over the last two decades. Using new employer-employee matched datasets we find that the CEO pay-performance relationship remains asymmetric: pay responds more to increases in shareholders' return performance than to decreases. Further, this asymmetry is stronger when governance appears weak. Second, there is substantial 'pay-for-luck' as remuneration increases with random positive shocks, even when the CEO has equity awards that explicitly condition on firm performance relative to peer firms in the same sector. A reason why relative performance pay fails to deal with pay for luck is that CEOs who fail to meet the terms of their past performance awards are able to obtain more generous new equity rewards in the future. Moreover, this 'compensation effect' is stronger when the firm has weak corporate governance. These findings suggest that reforms to the formal structure of CEO pay contracts are unlikely to align incentives in the absence of strong shareholder governance.
    Keywords: CEO; equity plans; incentives; Pay
    JEL: G30 J31 J33
    Date: 2016–07
  2. By: Brice Corgnet (Economic Science Institute, Argyros School of Business and Economics); Joaquin Gomez-Minambres (Bucknell University, Department of Economics,); Roberto Hernan-Gonzalez (Business School, University of Nottingham)
    Abstract: We study a principal-agent framework in which principals can assign wage-irrelevant goals to agents. We find evidence that, when given the possibility to set wage-irrelevant goals, principals select incentive contracts for which pay is less responsive to agents’ performance. Agents’ performance is higher in the presence of goal setting despite weaker incentives. We develop a principal-agent model with reference-dependent utility that illustrates how labor contracts combining weak monetary incentives and wage-irrelevant goals can be optimal. The pervasive use of non-monetary incentives in the workplace may help account for previous empirical findings suggesting that firms rely on unexpectedly weak monetary incentives.
    Keywords: Principal-agent models, incentive theory, non-monetary incentives, goal setting, reference-dependent utility, laboratory experiments.
    Date: 2016–09
  3. By: Todd Schoellman (Arizona State University); Lutz Hendricks (UNC Chapel Hill)
    Abstract: We reconsider the role for human capital in accounting for cross-country income differences. Our contribution is to bring to bear new data on the pre- and post- migration labor market experiences of immigrants to the U.S. Immigrants from poor countries experience wage gains that are only 40 percent of the GDP per worker gap. This fact implies that “country†accounts for only 40 percent of cross-country income differences, while human capital accounts for the other 60 percent. Our work deals with two well-known problems in the literature. It controls for selection by using data on the wages of the same individual in two different countries. We provide evidence on the importance of skill transfer by comparing pre- and post-migration occupations. Occupational downgrading at migration is common; corrections for this imply that human capital may account for as little as 50 percent of cross-country income differences.
    Date: 2016
  4. By: Michael Graber (UCL); Jeremy Lise (University College London)
    Abstract: We develop a frictional model of the labor market with stochastic human capital accumulation and incomplete markets. The stochastic process for human capital may be heterogeneous across workers as well as depend on the firm type where the worker is employed. We establish nonparametric identification of the model, and estimate it using matched employer-employee data from Germany. We provide a decomposition of lifecycle inequality in earnings and consumption resulting from heterogeneity in ability, heterogeneity in the rate of human capital accumulation, search frictions (the random allocation of similar workers to different jobs) and the interaction of human capital and search friction (a worker’s history of job opportunities may differentially affect her human capital accumulation opportunities).
    Date: 2016
  5. By: Sharon Belenzon; Mark Schankerman
    Abstract: This paper studies how business models can be designed to tap effectively into open innovation labor markets with heterogeneously motivated workers. Using data on open source software, we show that motivations are diverse, and demonstrate how managers can strategically influence the flow of code contributions and their impact on project performance. Unlike previous literature using survey data, we exploit the observed pattern of project membership and code contributions-the "revealed preference" of developers-to infer the motivations driving their decision to contribute. Developers strongly sort along key dimensions of the business model chosen by project managers, especially the degree of openness of the project license. The results indicate an important role for intrinsic motivation, reputation, and labor market signaling, and a more limited role for reciprocity.
    Keywords: strategic human capital; sorting; motivations; open innovation; open source; intellectual property rights
    JEL: J1
    Date: 2015
  6. By: Michael Housman (HiQ Labs); Dylan Minor (Harvard Business School, Strategy Unit)
    Abstract: We study the effects of performance spillover in the workplace?both positive and negative?on several dimensions, and find that it is pervasive and decreasing in the physical distance between workers. We also find that workers have different strengths, and that while spillover is minimal for a worker when it occurs in an area of strength, the same worker can be greatly affected if the spillover occurs in her area of weakness. We find this feature allows for a symbiotic pairing of workers in physical space that can improve performance by some 15%. Overall, workplace space appears to be a resource that firms can use to design more effective organizations.
    Keywords: strategic human resource management, peer e¤ects, productivity, spillovers, toxic worker
    Date: 2016–06
  7. By: Izabela Marzec (University of Economics in Katowice)
    Abstract: Topic and purposeHuman capital is considered as an essential driver of achieving competitive advantage in the healthcare sector. However, employment relationships in the Polish healthcare sector are changing and long-term relationships are replaced with more temporary relationships. Contrary to the situation in other sectors, this is favorable for employees of healthcare entities what stems from a growing demand for medical services. Healthcare entities attempt to attract and retain valuable employees. The possibility of employability enhancement becomes an important factor deciding about the attractiveness of the employer for many employees who look for opportunities for further career development. However, knowledge about competencies determining employability and practices of its enhancement in this sector is still poor. This paper tries to answer the questions: what are key employability competencies of employees in the healthcare sector and what are the conditions of their enhancement in healthcare organizations?MethodThe aims of the paper are realized by presenting the results of semi-structured interviews carried out with top management of 11 public healthcare entities*. Healthcare entities operating in Southern, Northern, Central, Eastern and Western Poland were targeted in order to get a more complete view of the situation. On the basis of the interviews carried out with managers of healthcare entities key employability competencies of employees and the practices of employability enhancement applied in healthcare entities are analyzed.Findings and implicationsDespite the fact that generally professional knowledge and skills were considered as the most important factor of employability in healthcare organizations the significance of some generic competences was also emphasized. It has been found that although the employees’ employability enhancement is a vital concern of the management in the examined healthcare entities, activities undertaken in this area are rather limited and primarily focused on trainings. To conclude, assuming that people and their competences are the most important capital of healthcare organizations, activities aimed at employability enhancement acquire crucial importance in healthcare entities and they should become an inherent element of HRM policy. They have to focus not only on the development of employees’ professional knowledge and skills but also generic competences which today become a significant factor determining employability in the healthcare sector.* The project was funded from the resources of the National Science Centre (Poland) granted by the decision no. DEC-2013/11/B/HS4/00561.
    Keywords: employability, HRM, healthcare sector
    JEL: J24 O15 I19
  8. By: Bryson, Alex (University College London); Forth, John (National Institute of Economic and Social Research (NIESR))
    Abstract: Small and medium-sized enterprises (SMEs) are known to contribute significantly to aggregate economic growth. However, little is known about the role played by management practices in SME growth since recession. We contribute to the literature on SME growth by analysing longitudinal administrative data on firms' employment and turnover, taken from the UK's Business Structure Database (BSD), with data on management practices collected in face-to-face interviews from the HR Managers and employees who were surveyed as part of the 2011 British Workplace Employment Relations Survey (WERS). We find off-the-job training is the only management practice that is robustly and significantly associated with higher employment growth, increased turnover, and a decline in closure probabilities, over the period 2011-2014. The findings suggest SME investment in off-the-job training is sub-optimal in Britain such that firms could benefit economically from increasing the amount of off-the-job training they offer to their non-managerial employees.
    Keywords: SMEs, small and medium-sized enterprises, employment growth, sales, workplace closure, HRM, training, recession
    JEL: L25 M12 M50 M53
    Date: 2016–07
  9. By: Matthias EFING (University of Geneva and Swiss Finance Institute); Harald HAU (University of Geneva and Swiss Finance Institute); Patrick KAMPKÖTTER (University of Cologne); Johannes STEINBRECHER (Ifo Institute Branch Dresden)
    Abstract: We use payroll data in the Austrian, German, and Swiss banking sector to identify incentive pay in the critical banking segments of treasury/capital market management and investment banking for 67 banks. We document an economically signifi?cant correlation of incentive pay with both the level and volatility of bank trading income?--particularly for the pre-crisis period 2003?-7, in which incentive pay was strongest. This result is robust if we instrument the bonus share in the capital markets divisions with the strength of incentive pay in unrelated bank divisions like retail banking. Moreover, pre-crisis incentive pay appears too strong for an optimal trade-off between trading income and risk, which maximizes the net present value of trading income. Further analyses indicate that the bonus moderation during the crisis has removed excessive pre-crisis incentive pay.
    Keywords: Trading Income, Bank Risk, Incentive Pay, Bonus Payments
    JEL: G20 G21 D22
  10. By: Kolm, Julian; Laux, Christian; Lóránth, Gyöngyi
    Abstract: We analyze the limits of regulating bank CEO compensation to reduce risk shifting in the presence of an active board that retains the right to approve new investment strategies. Compensation regulation prevents overinvestment in strategies that increase risk, but it is ineffective in preventing underinvestment in strategies that reduce risk. The regulator optimally combines compensation and capital regulations. In contrast, if the board delegates the choice of strategy to the CEO, compensation regulation is sufficient to prevent both types of risk shifting. Compensation regulation increases shareholders' incentives to implement an active board, which reduces the effectiveness of compensation regulation.
    Keywords: Bank Regulation; Executive Compensation; Corporate Governance
    JEL: G21 G28
    Date: 2016–07
  11. By: Grund, Christian (RWTH Aachen University); Rubin, Maike (RWTH Aachen University)
    Abstract: We combine status quo and social comparison considerations and investigate whether relative wage increases in the sense of differences between individual wage increases and wage increases of comparable employees are related to managers' job satisfaction. Using a panel data set of managers in the German chemical industry, we indeed find first evidence. The relation between relative wage increases and job satisfaction is relevant for managers with lower absolute wage levels in particular.
    Keywords: job satisfaction, reference points, social comparisons, status quo preferences, wage increases
    JEL: M52 J28 J31
    Date: 2016–07

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