nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2016‒09‒18
ten papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. Goal Setting in the Principal-Agent Model: Weak Incentives for Strong Performance By Brice Corgnet; Joaquín Gómez-Miñambres; Roberto Hernán-Gonzalez
  2. CEO pay and the rise of relative performance contracts: a question of governance By Brian Bell; John Van Reenen
  3. Work-related learning and skill development in Europe: Does initial skill mismatch matter? By Ferreira Sequeda, Maria; Künn, Annemarie; de Grip, Andries
  4. Small Firms, Human Capital, and Productivity in Asia By Vandenberg, Paul; Trinh, Long Q.
  5. Money and Status: How Best to Incentivize Work By Pradeep Dubey; John Geanakoplos
  6. Business Ethics in Organizations: An Experimental Examination of Whistleblowing and Personality By Bartuli, Jenny; Djawadi, Behnud Mir; Fahr, René
  7. Management as a technology? By Nicholas Bloom; Raffaella Sadun; John Van Reenen
  8. Executive Lawyers: Gatekeepers or Strategic Officers? By Adair Morse; Wei Wang; Serena Wu
  9. Managerial ownership changes and mutual fund performance By Martin, Thorsten; Sonnenburg, Florian
  10. Trust and signals in workplace organization: evidence from job autonomy differentials between immigrant groups By van Hoorn, Andr

  1. By: Brice Corgnet (EMLYON Business School, Univ Lyon, GATE L-SE UMR 5824, F-69131 Ecully, France); Joaquín Gómez-Miñambres (Bucknell University, Department of Economics, One Dent Drive, Lewisburg, PA 17837. Chapman University, Economic Science Institute. One University Drive, Orange, California 92866); Roberto Hernán-Gonzalez (Nottingham University, Business School, Nottingham, UK)
    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. We show that average performance of agents is higher in the presence of goal setting than in its absence 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. It follows that recognizing 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
    JEL: C92 D23 M54
    Date: 2016
  2. By: Brian Bell; John Van Reenen
    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; pay; incentives; equity plans
    JEL: G30 J31 J33
    Date: 2016–07
  3. By: Ferreira Sequeda, Maria (General Economics 2 (Macro)); Künn, Annemarie (ROA / Dynamics of the labour market); de Grip, Andries (Research Centre for Educ and Labour Mark)
    Abstract: This paper provides more insight into the relevance of the assumption of human capital theory that the productivity of job-related training is driven by the improvement of workers’ skills. We analyse the extent to which training and informal learning on the job are related to employee skill development and consider the heterogeneity of this relationship with respect to workers’ skill mismatch at job entry. Using data from the 2014 European Skills Survey, we find – as assumed by human capital theory – that employees who participated in training or informal learning show greater improvement of their skills than those who did not. The contribution of informal learning to employee skill development appears to be larger than that of training participation. Nevertheless, both forms of learning are shown to be complementary. This complementarity between training and informal learning is related to a significant additional improvement of workers’ skills. The skill development of workers who were initially underskilled for their job seems to benefit the most from both training and informal learning, whereas the skill development of those who were initially overskilled benefits the least. Work-related learning investments in the latter group seem to be more functional in offsetting skill depreciation than in fostering skill accumulation.
    Keywords: training, informal learning, skill development, skill mismatch, human capital
    JEL: J24 M53
    Date: 2016
  4. By: Vandenberg, Paul (Asian Development Bank Institute); Trinh, Long Q. (Asian Development Bank Institute)
    Abstract: The paper analyzes the link between human capital and firm-level productivity in five Asian countries. It draws on a dataset of over 4,000 enterprises and considers both the prior educational attainment of workers and in-service training programs of enterprises. Differences between small, medium-sized, and large enterprises and between countries are also presented. The key finding is that both preservice education and in-service training are positively correlated with labor productivity. The productivity of small and medium-sized enterprises (SMEs) is enhanced by a higher level of skills and education of the workforce, just as it is with large firms. However, there are country differences. The policy implications are that competitiveness is enhanced both by raising the general level of education in the workforce and by encouraging enterprise-based training programs.
    Keywords: SME; human capital; firms; enterprises; services; productivity; skills; education; in-service training; labor; workforce; competitiveness; enterprise-based training; People’s Republic of China; Indonesia; Malaysia; Thailand; Viet Nam
    JEL: D22 D24 J24
    Date: 2016–09–12
  5. By: Pradeep Dubey; John Geanakoplos
    Date: 2016
  6. By: Bartuli, Jenny (Continental AG); Djawadi, Behnud Mir (University of Paderborn); Fahr, René (University of Paderborn)
    Abstract: The present paper suggests an innovative experimental design to study the nature and occurrence of whistleblowing in an employee-organization context. In particular, we aim at identifying whether student subjects in the role of employees are willing to blow the whistle on their managers' decisions to withhold money that is destined for a charitable purpose. Since the sole act of reporting leads to negative financial consequences for both players, the employee faces a conflict between ethical considerations and monetary interests. Of the 111 employee-manager pairings, 88 managers misappropriate the donation funds and 33 employees blow the whistle on their managers' fraudulent behaviors. We use different scales of the HEXACO and the DOSPERT personality inventory to link measures of personality traits to actual behavior which enables us to identify specific characteristics that distinguish whistleblowers from silent observers. We find that the Honesty-Humility factor scale is a strong predictor for whistleblowing. Further, employees who are more altruistic and more aware of ethical issues are more likely to refrain from supporting fraud and report wrongdoing. With the foci on research exploring individual and situational antecedents of whistleblowing, our experimental design offers researchers a new approach to studying organizational behavior of ethical scope under controlled and incentive-compatible conditions.
    Keywords: whistleblowing, fraud, organizational wrongdoing, social norms, experimental economics, laboratory experiment
    JEL: C91 I11
    Date: 2016–09
  7. By: Nicholas Bloom; Raffaella Sadun; John Van Reenen
    Abstract: Are some management practices akin to a technology that can explain company and national productivity, or do they simply reflect contingent management styles? We collect data on core management practices from over 11,000 firms in 34 countries. We find large cross-country differences in the adoption of basic management practices, with the US having the highest size-weighted average management score. We present a formal model of \Management as a Technology", and structurally estimate it using panel data to recover parameters including the depreciation rate and adjustment costs of managerial capital (both found to be larger than for tangible nonmanagerial capital). Our model also predicts (i) a positive effect of management on firm performance; (ii) a positive relationship between product market competition and average management quality (part of which stems from the larger covariance between management with firm size as competition strengthens); and (iii) a rise (fall) in the level (dispersion) of management with firm age. We find strong empirical support for all of these predictions in our data. Finally, building on our model, we find that differences in management practices account for about 30% of cross-country total factor productivity differences.
    Keywords: management practices; productivity; competition
    JEL: L2 M2 O32 O33
    Date: 2016–05
  8. By: Adair Morse; Wei Wang; Serena Wu
    Abstract: Lawyers now serve as executives in 44% of corporations. Although endowed with gatekeeping responsibilities, executive lawyers face increasing pressure to use time on strategic efforts. In a lawyer fixed effects model, we quantify that lawyers are half as important as CEOs in explaining variances in compliance, monitoring, and business development. In a difference-in-differences model, we find that hiring lawyers into executive positions associates with 50% reduction in compliance breaches and 32% reduction in monitoring breaches. We then ask whether firms’ optimal contracting of lawyers into strategic activities implies less lawyer gatekeeping effort. Using a design comparing executive lawyers hired from law firms to lawyers poached from corporations, we find that lawyers hired with high compensation delta (indicative of the importance of strategic goals in compensation contracts) do less monitoring, preventing 25% fewer breaches than are typically mitigated by having an executive gatekeeper. Reassuringly, lawyers do not compromise compliance.
    JEL: G32 G34 J33 K22 M52
    Date: 2016–09
  9. By: Martin, Thorsten; Sonnenburg, Florian
    Abstract: We study the dynamics of fund manager ownership for a sample of U.S. equity mutual funds from 2005 to 2011. We find that ownership changes positively predict changes in future risk-adjusted fund performance. A one-standarddeviation increase in ownership predicts a 1.6 percent increase in alpha in the following year. Fund managers who are required to increase their ownership by fund family policy show the strongest increase in alpha. They do so by increasing their trading activity in line with the view that higher ownership aligns interests of managers with those of shareholders and induces higher effort.
    Keywords: Mutual Funds,Fund Manager Ownership Changes,Fund Performance Predictability,Incentive Alignment,Superior Information
    JEL: G11 G14 G20 G23
    Date: 2015
  10. By: van Hoorn, Andr (Groningen University)
    Date: 2016

This nep-hrm issue is ©2016 by Patrick Kampkötter. 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.