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on Human Capital and Human Resource Management |
| By: | Stanimir Morfov (University of Miami); Manuel Santos (University of Miami) |
| Abstract: | In this paper we present an adverse selection model of managerial talent. The model can account for some empirical regularities in executive compensation such as the higher level of CEO pay and the prominence of incentive pay in large and high-volatility firms as well as the controversial evidence on career concerns. Relative performance evaluation (RPE) is only obtained if the performance function is weakly separable on managerial talent and internal productivity factors. These predictions stand in sharp contrast to those of competing theories based upon moral hazard, managerial talent, and rent extraction. |
| Keywords: | Managerial talent; adverse selection; optimal contract; firm’s size; volatility of company returns; CEO age; relative performance evaluation Publication Status: Ex. Under Review |
| JEL: | D82 G30 J33 |
| Date: | 2017–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:mia:wpaper:2017-03&r=hrm |
| By: | Loukas Balafoutas; Simon Czermak; Marc Eulerich; Helena Fornwagner |
| Abstract: | This study examines experimentally how dishonest behavior in the form of misreporting others' performance depends on the nature of provided incentives. We conduct a 'lab in the field' experiment with internal auditors during two large conferences in Germany and evaluate their performance and objectivity, measured as the extent to which they truthfully report the performance of other participants a real-effort task. It has been suggested in the literature that incentive-pay compensation for auditors has the potential to lead to dishonest behavior on their part, for instance when their payoff depends on the performance of the unit that they are auditing. We vary incentives in the experiment from individual (piece rate) to competitive (tournament against another auditor) and collective (based on performance within a team). In line with our hypotheses, we find that incentive-based compensation increases dishonest behavior among internal auditors: competitive incentives lead to under-reporting of other participants' performance, while collective incentives lead to over-reporting of performance. |
| Keywords: | dishonesty, incentives, sabotage, internal audit, experiment |
| JEL: | C93 M42 M52 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2017-06&r=hrm |
| By: | Fuhai Hong; Tanjim Hossain; John List; Migiwa Tanaka |
| Abstract: | Using a natural field experiment with factory workers where we introduce a quantity-based performance-pay scheme in addition to their base salary, we quantify the impact of one-dimensional monetary incentives on both incentivized (quantity) and non-incentivized (quality) dimensions of output. While the management typically observes only quantity, we also observe quality by hiring quality-inspectors unbeknownst to the workers. While some workers receive a flat-rate base salary, others receive a piece-rate base salary. We find sharp evidence that workers under a flat-rate base salary trade off quality for quantity. Interestingly, this quantity-quality trade-off is statistically insignificant for workers under a piece-rate base salary. This variation in the treatment effect is consistent with a simple theoretical model that predicts that when agents are already incented at the margin, the quantity-quality trade-off resulting from additional incentives will be less prominent. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:feb:natura:00609&r=hrm |
| By: | Alison E. Weingarden |
| Abstract: | Many firms adjust employment in a "lumpy" manner -- infrequently and in large bursts. In this paper, I show that lumpy adjustments can arise from concerns about the incentives of remaining workers. Specifically, I develop a model in which a firm's productivity depends on its workers' effort and workers' income prospects depend on the firm's profitability. I use this model to analyze the consequences of demand shocks that are observed by the firm but not by its workers, who can only try to infer the firm's profitability from its employment decisions. I show that the resulting signaling model has pooling equilibria in which, for small negative shocks, the firm bears the costs of some labor hoarding in order to conceal negative information from workers and thus maintain their incentives for effort. However, if negative shocks accumulate then labor hoarding becomes too costly; at that point the firm drastically reduces employment. |
| Keywords: | Asymmetric information ; Displacement ; Downsizing ; Labor demand ; Layoffs ; Moral hazard ; Signaling |
| JEL: | D82 J21 J63 M51 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-40&r=hrm |
| By: | Helena Fornwagner |
| Abstract: | This paper analyzes data from a tournament, namely the National Hockey League regular scheduled season of games, which provides incentives to increase effort in order to reach the playoffs and incentives to decrease effort once a team has been eliminated from playoff considerations because of the entry draft. Our results show that teams indeed react to these dual incentives - they win more games when there is still a chance to reach the playoffs and lose more after being eliminated from playoff considerations. One can argue that losing more games after having no more chance to reach the playoffs could be the result of lower motivation or disappointment. This is the first study to show that this is not the only explanation for a higher amount of lost games. Instead, we find that there is a concrete strategy behind losing. |
| Keywords: | tournaments, dual incentives, National Hockey League, losing strategy |
| JEL: | C93 D03 L83 M52 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2017-07&r=hrm |
| By: | Fahn, Matthias (LMU Munich); Schwarz, Marco A. (LMU Munich) |
| Abstract: | We analyze how agents\' present bias affects optimal contracting in an infinite-horizon employment setting. The principal maximizes profits by offering a menu of contracts to naive agents: a virtual contract - which agents plan to choose in the future - and a real contract which they end up choosing. This virtual contract motivates the agent and allows the principal to keep the agent below his outside option. Moreover, under limited liability, implemented effort can be inefficiently high. With a finite time horizon, the degree of exploitation of agents decreases over the life-cycle. While the baseline model abstracts from moral hazard, we show that the result persists also when allowing for non-contractible effort. |
| Keywords: | Employment relations; dynamic contracting; present bias; |
| JEL: | D03 D21 J31 M52 |
| Date: | 2017–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:6&r=hrm |
| By: | Schmidt, Klaus (University of Munich); Fey, Lisa (University of Munich); Thoma, Carmen (University of Munich) |
| Abstract: | We report on two experiments that identify non-monetary incentive effects of competition. As the number of competitors increases, monetary incentives to engage in cost reduction tend to decrease. We test the hypothesis that there are non-monetary incentive effects of competition going in the opposite direction. In the experiments we change the number of competitors exogenously keeping the monetary incentives to spend effort constant. The first experiment shows that subjects spend significantly more effort in duopolistic and oligopolistic markets than in a monopoly. The second experiment focuses on social comparisons as one potential mechanism for this effect. It shows that competition turns the effort decisions of competing managers into strategic complements. |
| Keywords: | incentive effects of competition; behavioral industrial organization; |
| JEL: | D03 L10 O31 |
| Date: | 2017–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:31&r=hrm |
| By: | Spann, Martin (University of Munich); Stich, Lucas (University of Munich); Schmidt, Klaus M. (University of Munich) |
| Abstract: | We analyze \'Pay What You Want\' as a business model for Open Access publishing by discussing motives leading authors to make voluntary contributions, potential benefits for publishers and present results from a field experiment at one publisher. Data from the field experiment indicate authors\' willingness to voluntarily contribute. |
| Keywords: | Gold open access; article processing charges; customer-driven pricing; voluntary contributions; field experiment; |
| JEL: | M31 D03 L11 |
| Date: | 2017–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:10&r=hrm |
| By: | Bandiera, Oriana; Hansen, Stephen; Prat, Andrea; Sadun, Raffaella |
| Abstract: | We measure the behavior of 1,114 CEOs in Brazil, France, Germany, India, UK and US using a new methodology that combines (i) data on every activity the CEOs undertake during one workweek and (ii) a machine learning algorithm that projects these data onto scalar CEO behavior indices. Low values of the index are associated with plant visits, and one-on-one meetings with production or suppliers, while high values correlate with meetings with high-level C-suite executives, and several functions together, both from inside and outside the firm. We use these data to study the correlation between CEO behavior and firm performance within the framework of a firm-CEO assignment model. We show results consistent with significant firm-CEO assignment frictions, which appear to be more severe in lower-income regions. The productivity loss generated by inefficient assignment is equal to 13% of the productivity gap between high- and low-income countries in our sample. |
| Keywords: | CEO; leadership; unsupervised learning |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11960&r=hrm |
| By: | Schmidt, Klaus (University of Munich) |
| Abstract: | Oliver Hart and Bengt Holmström were awarded the 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for their fundamental contributions to contract theory. This article offers a short summary and discussion of their path breaking work. |
| Keywords: | contract theory; nobel prize; optimal incentive schemes; incomplete contracts; |
| JEL: | B21 D23 D82 L20 |
| Date: | 2017–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:19&r=hrm |
| By: | Philippe Aghion; Nicholas Bloom; Brian Lucking; Raffaella Sadun; John Van Reenen |
| Abstract: | What is the optimal form of firm organization during "bad times"? Using two large micro datasets on firm decentralization from US administrative data and 10 OECD countries, we find that firms that delegated more power from the Central Headquarters to local plant managers prior to the Great Recession out-performed their centralized counterparts in sectors that were hardest hit by the subsequent crisis. We present a model where higher turbulence benefits decentralized firms because the value of local information and urgent action increases. Since turbulence rises in severe downturns, decentralized firms do relatively better. We show that the data support our model over alternative explanations such as recession-induced reduction in agency costs (due to managerial fears of bankruptcy) and changing coordination costs. Countries with more decentralized firms (like the US) weathered the 2008-09 Great Recession better: these organizational differences could account for about 16% of international differences in post-crisis GDP growth. |
| Keywords: | decentralization, growth, turbulence, Great Recession |
| JEL: | O31 F23 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1479&r=hrm |
| By: | SATO Kaori; HASHIMOTO Yuki; OWAN Hideo |
| Abstract: | Past literature has shown that job segregation by gender is one major cause of the widely observed gender pay gap and that there is also a gender difference in developmental job assignments for broader job experience. This paper examines how gender differences in job assignments are associated with the gender gap in pay and promotion using the personnel records of a Japanese manufacturing company. One of the major findings is that broader work experience through job transfers across establishments are associated with a higher promotion probability and future wages for employees of both genders, but this relationship is especially strong for women, which is consistent with the existence of statistical discrimination against them. Furthermore, according to our fixed effects model estimation of wage function, broader work experience leads to higher wages for men but not for women, implying that women accept promotions without pay raises much more often than men. |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:17051&r=hrm |