nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2017‒08‒13
five papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. Workplace Employee Representation and Industrial Relations Performance: New Evidence from the 2013 European Company Survey By Addison, John T.; Teixeira, Paulino
  2. On moral hazard and persistent private information By Vasama, Suvi
  3. Contracting with long-term consequences By Vasama, Suvi
  4. The efficiency wage hypothesis and the role of corporate governance in firm performance By DiGabriele, Jim; Ojo, Marianne
  5. Dealing with Overleverage: Restricting Leverage vs. Restricting Variable Compensation By Gete, Pedro; Gomez, Juan Pedro

  1. By: Addison, John T. (University of South Carolina); Teixeira, Paulino (University of Coimbra)
    Abstract: Using cross-country data from the European Company Survey, we investigate the relationship between workplace employee representation and five behavioral outcomes: strike incidence, the climate of industrial relations, sickness/absenteeism, employee motivation, and staff retention. The evidence is mixed. From one perspective, the expression of collective voice through works councils may be construed as largely beneficial. However, any such optimistic evaluation is heavily qualified by union organization and in particular workplace unionism. Establishment union density seemingly blunts the performance of employee workplace representation, elevating dissatisfaction at the expense of collaboration.
    Keywords: employee representation, works councils, union agency, collective bargaining, strikes, industrial relations quality, employee motivation and retention
    JEL: J51 J52 J53 J83
    Date: 2017–07
  2. By: Vasama, Suvi
    Abstract: I examine a simple model of dynamic moral hazard in which the agent has persistent private information. I show that despite the complexity of the framework, the problem has a simple solution that can be found using standard methods. The incentives at the optimal contract can be captured using two state variables: the agent's continuation value and his information rent. The optimal contract uses a combination of nonnegative payments and inefficient liquidation threat to provide the agent incentives. In the beginning, the inefficient liquidation threat is severe, but the expected length of the relationship long, such that the agent's information rent is high. Over time, the information rent decays and continuation value increases as function of the past outcomes. Depending on the past performance, these two processes meet and liquidation at a fixed threshold becomes optimal. In particular, early weak performance leads to a permanent distortion that cannot be undone by performing well in the future.
    JEL: D82 D86
    Date: 2017–08–04
  3. By: Vasama, Suvi
    Abstract: I examine optimal managerial compensation and turnover policy in a principal-agent model in which the firm output is serially correlated over time. The model captures a learning-by-doing feature: higher effort by the manager increases the quality of the match between the firm and the manager in the future. The optimal incentive scheme entails an inefficiently high turnover rate in the early stages of the employment relationship. The optimal turnover probability depends on the past performance and the likelihood of turnover decreases gradually with superior performance. Following weak performance, the contract implements a permanently inefficient turnover rate. With correlated outcome, a permanent inefficiency is needed to save on information rents to the agent, even when the agent does not have persistent private information.
    JEL: C73 D82 D86
    Date: 2017–08–03
  4. By: DiGabriele, Jim; Ojo, Marianne
    Abstract: As well as a two-fold contribution to the literature as highlighted in their paper“, Financial Disruptions and the Cyclical Upgrading of Labor” (2017:8), and elaborated on by Epstein et al, the reconciliation of two quantitative limitations of current general equilibrium theories constituting part of such contribution, this paper highlights the need to incorporate other theories such as those relating to the economics of the firm – in explaining firm performance – given the previously highlighted limitations of “canonical models”. The inability to account for variables which are independent of exogenously or endogenously determined factors and which are outside their model, also necessitates the incorporation of other theories and factors to be taken into account in arriving at more accurate conclusions which determine firm performance.
    Keywords: efficiency wage hypothesis; pro cyclicality; financial cycles; firm performance; corporate governance
    JEL: D4 D8 E3 E5 E6 G2 G3 M4
    Date: 2017–08
  5. By: Gete, Pedro; Gomez, Juan Pedro
    Abstract: We study policies that regulate executive compensation in a model that jointly determines executives effort, compensation and firm leverage. The market failure that justifies regulation is that executives are optimistic about asset prices in states of distress. We show that shareholders propose compensation packages that lead to socially excessive leverage. Say-on-pay regulation does not reduce the incentives for leverage. Regulating the structure of compensation (but not its level) with a cap on the ratio of variable-to-fixed pay delivers the right leverage. However, it is more efficient to directly regulate leverage because restricting the variable compensation impacts managerial effort more than if shareholders are free to design compensation subject to a leverage constraint.
    Keywords: Executive Compensation; Leverage; Moral Hazard; Overborrowing; Optimism.
    JEL: D86 G20 G28
    Date: 2017–06

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