nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2016‒10‒09
twelve papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. Relative Pay for Non-Relative Performance: Keeping up with the Joneses with Optimal Contracts By DeMarzo, Peter; Kaniel, Ron
  2. The Third Worker: Assessing the Trade-off between Employees and Contractors By Martins, Pedro S.
  3. CEO Horizon and Optimal Pay Duration By Marinovic, Ivan; Varas, Felipe
  4. Why demotion of older workers is a no-go area for managers By van Dalen, Harry; Henkens, Kene
  5. Business Owners, Employees and Firm Performance By Maliranta, Mika; Nurmi, Satu
  6. Assessing the Effects on Mandated Compensation Disclosures By Gipper, Brandon
  7. Theory A for Optimizing Human Productivity By Aithal, Sreeramana; P. M., Suresh Kumar
  8. (Managerial) Style over Substance: Determinants of Devaluation for Female Supervisors in an Indian Garment Factory By Ranganathan, Aruna; Shivaram, Ranjitha
  9. Do Employers Learn from Public, Subjective, Performance Reviews? By Alex Wood-Doughty
  10. Right on Schedule: CEO Option Grants and Opportunism By Daines, Robert M.; McQueen, Grant R.; Schonlau, Robert J.
  11. Collective Choice in Dynamic Public Good Provision: Real versus Formal Authority By Bowen, T. Renee; Georgiadis, George; Lambert, Nicolas S.
  12. Ideal workers and ideal parents: Working-time norms and the acceptance of part-time and parental leave at the workplace in Germany By Lott, Yvonne; Klenner, Christina

  1. By: DeMarzo, Peter; Kaniel, Ron
    Abstract: We consider a multi-agent contracting setting when agents derive utility based in part on their pay relative to their peers. Because agents' productivity is affected by common as well as idiosyncratic shocks, it is optimal to base pay on the agent's performance relative to a benchmark of his peers. But when agents have "keeping up with the Joneses" (KUJ) preferences and care about how their pay compares to that of others, relative performance evaluation also increases agents' perceived risk. We show that when a single principal (or social planner) can commit to a public contract, the optimal contract hedges the risk of the agent's relative wage without sacrificing efficiency. While output is unchanged, however, hedging makes the contracts appear inefficient in the sense that performance is inadequately benchmarked. We also show that when there are multiple principals, or the principal is unable to commit, efficiency is undermined. In particular, KUJ effects induce agents to be more productive, but average wages increase even more, reducing firm profits. We also show that if the principal cannot commit not to privately renegotiate contracts, then wages and effort are increased when KUJ effects are weak, but are reduced, enhancing efficiency, when KUJ effects are sufficiently strong. Finally, public disclosure of contracts across firms can cause output to collapse.
    Keywords: contract; Joneses; manager; pay performance; relative
    Date: 2016–09
  2. By: Martins, Pedro S. (Queen Mary, University of London)
    Abstract: Firms make labour demand decisions not only between permanent and non-permanent employees but also increasingly more between employees and contractors. Indeed, this third work format can be attractive, also when employment protection law is restrictive. This paper examines empirically this scarcely researched trade-off drawing on a recent reform in Portugal that cut the severance pay of new employee hires while leaving unchanged the regulations affecting contractors. Our analysis draws on difference-in-differences methods and original high-frequency firm-level panel data on both employees and contractors. We find that the reduction in severance pay had a large relative positive effect on the wage bills and worker counts of employees compared to contractors. This result, robust to a number of checks, highlights the role of labour regulations as an additional driver of more flexible labour formats.
    Keywords: employment law, segmentation, duality, future of work
    JEL: J23 J41 J63
    Date: 2016–09
  3. By: Marinovic, Ivan (Stanford University); Varas, Felipe (Duke University)
    Date: 2015
  4. By: van Dalen, Harry (Tilburg University, School of Economics and Management); Henkens, Kene (Tilburg University, School of Economics and Management)
    Abstract: Demotion – the reduction of an employee’s rank and salary – is often mentioned by managers and policy-makers as a means of increasing the employability of older workers in an ageing labour force. However, so far in practice demotion is rarely applied. This paper is the first empirical investigation of how managers perceive demotion as an instrument of human resource management. By means of a survey and a vignette study among managers in the Netherlands (N = 355), we examine whether managers consider demotion of poorly performing older workers a fair solution. Three contributions stand out. First, based on attribution theory we find support for the hypothesis that managers judge demotion to be fair in those cases where deterioration in task performance is caused by controllable factors (such as work motivation) and unfair when the causes are uncontrollable (such as age). Second, the expectations of managers about the organization-wide consequences of introducing demotion as a human resource policy play a significant role in considering demotion. Most managers perceive negative organizational externalities (e.g. decrease in loyalty and motivation of staff) to arise when introducing demotion and are reluctant to apply demotion in practice. And a third contribution: positive (negative) beliefs of managers about the hard skills – e.g. creativity, willingness to learn, flexibility – of older workers make demotion less (respectively more) likely.
    Date: 2016
  5. By: Maliranta, Mika; Nurmi, Satu
    Abstract: Abstract The novel Finnish Longitudinal OWNer-Employer-Employee (FLOWN) database was used to analyze how the characteristics of owners and employees relate to firm performance as determined by labor productivity, survival and employment growth. Focusing on the role of the owner’s formal education and previous experience as an employee, the results show that previous experience in a high-productivity firm strongly predicts high productivity and probability of survival for the entrepreneur’s new firm. This can be interpreted as evidence of knowledge spillover through labor mobility. Strikingly, firms established in times of intensive excess job reallocation were found to exhibit superior productivity performance in the later phases of their life cycles.
    Keywords: Entrepreneurship, ownership, firm performance, human capital, diffusion of knowledge
    JEL: L25 L26 J24 J62 O33
    Date: 2016–10–06
  6. By: Gipper, Brandon (Stanford University)
    Abstract: This paper analyzes the effects of mandated, management compensation disclosures on compensation levels. For identification, I use the introduction of the Compensation Discussion and Analysis (CD&A) in 2006, a significant expansion in the required disclosures related to compensation. The design uses the timing of the introduction date to compare manager pay at firms with and without the disclosure in a difference-in-differences analysis. I find evidence that disclosures are associated with increasing compensation. I corroborate this evidence with the partial rollback of the CD&A allowed by the Jumpstart Our Business Startups Act in 2012, again finding that the CD&A is associated with higher compensation. From cross-sectional tests, this compensation increase appears to be concentrated among managers with shorter tenure, at smaller firms, and in industries with higher variation in pay. Entrenched and powerful managers (CEOs, CFOs, and executive directors) do not have incremental pay increases with disclosures.
    Date: 2016–01
  7. By: Aithal, Sreeramana; P. M., Suresh Kumar
    Abstract: Optimizing human productivity is a challenging process for the organizations and this process involves getting the best performance from employees within the organizational constraints. Even though the performance of human resources in organizations mainly depend on technology and external environment, ways of thinking individually and by teams, and humanistic orientation are important. Various models are used in developing a strategy to improve the people’s performance in organizations. Such for example, are theory X, theory Y and theory A. All these in common are based on presumptions about the human behaviour at work. Theory X and Y are opposing each other in predicting human nature. Theory X describes human nature as lazy, dislikes work and avoids, lacks responsibility, seeks security, lack of ambition and therefore should be forced, controlled, threatened or closely supervised to get work. Theory Y believes in the exercise of self-direction and self-control investing faith in individual potential, imagination, creativity and its application to work. Against this is theory A which focuses innate human potential, inherent urge for creativity, self-expression and contribution to the organization as motivators. As such, managers have to transform average employee to real performers using role models and self-exploration. This paper attempts to compare factors affecting organizational performance in all these aforesaid theories. It also details a set of model operational steps in introducing the theory of accountability. It also makes an SWOC analysis of theory A and its application to different types of organizations.
    Keywords: Theory A, Optimizing human productivity, Organizational success, SWOC analysis
    JEL: L2 M54
    Date: 2016–09–04
  8. By: Ranganathan, Aruna (Stanford University); Shivaram, Ranjitha (MIT)
    Abstract: Despite the rising representation of women in management, female managers continue to be devalued compared to male managers, presenting a challenge for gender inequality in organizations. This study helps address a significant gap in the literature by investigating if the devaluation of female managers can be explained by their lower effectiveness in motivating worker performance. We investigate this question by leveraging unique personnel records, ethnographic and field-experimental data in the context of a large Indian garment factory where female supervisors are devalued and paid 15% less than their male counterparts to manage a female workforce. First, we demonstrate that the devaluation of female supervisors cannot be explained by their lower managerial effectiveness. By exploiting within-worker changes in supervisor gender in the personnel data, we find that female supervisors elicit 5% higher worker performance than male supervisors. Second, we ethnographically and experimentally show that female supervisors outperform their male counterparts by adopting a "non-authoritative managerial style," and further suggest that this style could lead to devaluation by upper management. Combined, these results rule out managerial substance as an explanation for the devaluation of female managers, pointing instead to managerial style as a novel determinant of gender inequality in the workplace.
    Date: 2015
  9. By: Alex Wood-Doughty (Department of Economics, University of California, Santa Barbara, CA 93106)
    Abstract: Much of the new “gig economy” relies on reputation systems to reduce problems of asymmetric information. In most cases, these reputation systems function well by soliciting unbiased feedback from buyers and sellers. However, certain features of onlinelabor markets create incentives for employers to misreport worker performance. This paper tests whether employers learn about worker productivity from public, subjective, performance reviews using data from a large online labor market. Starting with a simple model of employer learning in the presence of potentially biased reviews, I derive testable hypotheses about the relationship between public information and wages, worker attrition, and contract renewals. I find that these public reviews provide substantial information to the market and that other firms use them to learn about the productivity of workers. I also find evidence that these reviews affect how long workers stay in the labor market. Finally, using data on applications, I provide evidence of a mechanism for honest reviews. I show that workers punish firms that leave negative reviews by refusing to work for them again. Together, this body of evidence suggests that reputation systems in online labor markets provide significant information to both workers and firms and help reduce problems of asymmetric information.
    Keywords: online labor markets; reputation systems; employer learning
    JEL: D82 D83 J31 J49
    Date: 2016–09
  10. By: Daines, Robert M. (Stanford University); McQueen, Grant R. (Brigham Young University); Schonlau, Robert J. (Brigham Young University)
    Abstract: In the wake of the backdating scandal, many firms began awarding options at scheduled times each year. Scheduling option grants eliminates backdating, but creates other agency problems. CEOs that know the dates of upcoming scheduled option grants have an incentive to temporarily depress stock prices before the grant dates to obtain options with lower strike prices. We provide evidence that in recent years some CEOs manipulate stock prices to increase option compensation. We document negative abnormal returns before scheduled option grants and positive abnormal returns after the grants. These returns are explained by measures of a CEO's incentive and ability to influence stock price. We document several mechanisms CEOs use to lower the strike price, including changing the substance and timing of the firm's disclosures.
    JEL: D82 G30 J33 K22 M41 M52
    Date: 2015–04
  11. By: Bowen, T. Renee (Stanford University); Georgiadis, George (Northwestern University); Lambert, Nicolas S. (Stanford University)
    Abstract: Two heterogeneous agents exert effort over time to complete a project and collectively decide its scope. A larger scope requires greater cumulative effort and delivers higher benefits upon completion. To study the scope under collective choice, we derive the agents' preferences over scopes. The efficient agent prefers a smaller scope, and preferences are time-inconsistent: as the project progresses, the efficient agent's preferred scope shrinks, whereas the inefficient agent's preferred scope expands. In equilibrium without commitment, the effcient agent obtains his ideal project scope with either agent as dictator and under unanimity. In this sense, the efficient agent always has real authority.
    JEL: C73 D70 D78 H41
    Date: 2015–12
  12. By: Lott, Yvonne; Klenner, Christina
    Abstract: This study examines the extent to which the use of part-time work and parental leave is accepted in German workplaces for women and men as well as various work positions and professions. Interviews were conducted with 95 employees and 26 experts in hospitals, police stations and industrial companies. The results indicate that the working-time norms not only vary according to gender, but to the position in the workplace hierarchy and profession. Moreover, working-time norms are shifting. Part-time work and parental leave is gradually more accepted in higher status position and for men. In addition to the norms, other factors - especially staffing issues and the behavior of management personnel - are decisive for acceptance, and thus for the work behavior of employees.
    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.
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