nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2019‒04‒15
twelve papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. Responding to Regulation: The Effects of Changes in Mandatory Retirement Laws on Firm-Provided Incentives By Frederiksen, Anders; Flaherty Manchester, Colleen
  2. Only time will tell: A theory of deferred compensation By Inderst, Roman; Opp, Marcus
  3. Bank Bonus Pay as a Risk Sharing Contract By Matthias Efing; Harald Hau; Patrick Kampkötter; Jean-Charles Rochet
  4. LPP - Linked Personnel Panel 1617 : Quality of work and economic success: longitudinal study in German establishments (data documentation on the second wave) By Mackeben, Jan; Ruf, Kevin; Grunau, Philipp; Wolter, Stefanie
  5. Self-Confidence and Reactions to Subjective Performance Evaluations By Bellemare, Charles; Sebald, Alexander
  6. Do Firms Redline Workers? By Ana María Díaz; Luz Magdalena Salas; Luz Magdalena Salas
  7. Helping under a Combination of Team and Tournament Incentives By Danilov, Anastasia; Irlenbusch, Bernd; Harbring, Christine
  8. The Work Preferences of Portuguese Millennials - a Survey of University Students By Ana Carvalho; Joaquim Silva
  9. Trust and workplace performance By John T. Addison; Paulino Teixeira
  10. Who Founds? An Analysis of University and Corporate Startup Entrepreneurs Based on Danish Register Data By Kaiser, Ulrich; Kuhn, Johan Moritz
  11. Willingness to Compete and Work Incentives By Chika Yamanami
  12. Is Stricter Regulation of Incentive Compensation the Missing Piece? By Wall, Larry D.

  1. By: Frederiksen, Anders (Aarhus University); Flaherty Manchester, Colleen (University of Minnesota)
    Abstract: The Age Discrimination in Employment Act of 1978 expanded employee age protections to age 70, making the widespread practice by U.S. firms of mandating retirement at age 65 illegal. Building on the work of Lazear (1979), we propose that the law change not only weakened the long-term employment contract, but also contributed to the rise in pay-for-performance incentives. We model the firm's choice between offering long-term incentive contracts with low monitoring requirements and pay-for-performance (PFP) contracts with high monitoring requirements, showing how the law change increased the relative attractiveness of PFP contracts. We test the model's predictions using data from the Baker-Gibbs-Holmstrom firm, evaluating the effect of the law change on the slope of the age-pay profile, turnover rates, and the sensitivity of pay to performance. Further, we find direct evidence of strategic response to the law change by the firm, including the introduction of bonus payments, change in performance management system, and increase in the proportion of top managers. The setting also provides an opportunity to empirically investigate how firms navigate career incentives for employees.
    Keywords: incentive pay, pay for performance, long-term incentive contracts, promotions, slot constraints, career incentives
    JEL: M51 M52
    Date: 2019–03
  2. By: Inderst, Roman; Opp, Marcus
    Abstract: This paper provides a complete characterization of optimal contracts in principal-agent settings where the agent's action has persistent effects. We model generalinformation environments via the stochastic process of the likelihood-ratio. Themartingale property of this performance metric captures the information benefit ofdeferral. Costs of deferral may result from both the agent's relative impatience aswell as her consumption smoothing needs. If the relatively impatient agent is riskneutral, optimal contracts take a simple form in that they only reward maximalperformance for at most two payout dates. If the agent is additionally risk-averse,optimal contracts stipulate rewards for a larger selection of dates and performancestates: The performance hurdle to obtain the same level of compensation is in-creasing over time whereas the pay-performance sensitivity is declining. We derivetestable implications for the optimal duration of (executive) compensation and thematurity structure of claims in financial contracting settings.
    Keywords: Compensation design; duration of pay; Informativeness principle; moral hazard; Persistence; Principal-Agent Models
    JEL: D86
    Date: 2019–04
  3. By: Matthias Efing (HEC Paris - Finance Department; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)); Harald Hau (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)); Patrick Kampkötter (University of Tuebingen - Department of Managerial Accounting); Jean-Charles Rochet (GFRI, University of Geneva; Swiss Finance Institute; University of Zurich - Swiss Banking Institute (ISB))
    Abstract: We argue that risk sharing motivates the bank-wide structure of bonus pay. In the presence of fi nancial frictions that make external fi nancing costly, the optimal contract between shareholders and employees involves some degree of risk sharing whereby bonus pay partially absorbs earnings shocks. Using payroll data for 1:26 million employee-years in all functional divisions of Austrian, German, and Swiss banks, we uncover several empirical patterns in bonus pay that are difficult to rationalize with incentive theories of bonus pay-but support an important risk sharing motive. In particular, bonuses respond to performance shocks that are outside the control of employees because they originate in other bank divisions or even outside the bank.
    Keywords: banker compensation, risk sharing, bonus pay, operating leverage
    JEL: G20 G21 D22
    Date: 2018–11
  4. By: Mackeben, Jan (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Ruf, Kevin (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Grunau, Philipp (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Wolter, Stefanie (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "This data report describes the third wave of the Linked Personnel Panel (LPP 1617). The LPP is a linked-employer-employee data set on human resources (HR) work, corporate culture and management instruments in German establishments that evolved within the framework of the project ‘Quality of work and economic success’. The three survey waves contain information from 1,219 companies, 7,508 employees (wave 1), 771 companies and 7,282 employees (wave 2) as well as 846 companies and 6779 employees (wave 3). The LPP is representative for German private sector establishments with at least 50 employees subject to social security. The linkage with the IAB Establishment Panel yields a data product that enables longitudinal analyses regarding HR strategies and quality of work in Germany." (Author's abstract, IAB-Doku) ((en)) Additional Information Frequencies
    Keywords: IAB-Datensatz Linked Personnel Panel, Datensatzbeschreibung, Datenqualität, Betriebsbefragung, Mitarbeiterbefragung, Datenanonymisierung, Stichprobe, Datenorganisation
    Date: 2018–08–16
  5. By: Bellemare, Charles (Université Laval); Sebald, Alexander (University of Copenhagen)
    Abstract: Subjective performance evaluations are commonly used to provide feedback and incentives to workers. However, such evaluations can generate significant disagreements and conflicts, the severity of which may be driven by many factors. In this paper we show that a workers' level of self-confidence plays a central role in shaping reactions to subjective evaluations - overconfident agents engage in costly punishment when they receive evaluations below their own, but provide limited rewards to principals when evaluations exceed their own. In contrast, underconfident agents do not significantly react to evaluations below their own, but reward significantly evaluations exceeding their own. Our analysis exploits data from a principal-agent experiment run with a large sample of the Danish working age population, varying the financial consequences associated with the evaluations workers receive. In contrast to existing economic models of reciprocal behavior, reactions to evaluations are weakly related to the financial consequences of the evaluations. These results point towards a behavioral model of reciprocity that intertwines the desire to protect self-perceptions with over-/underconfidence.
    Keywords: subjective performance evaluations, self-confidence, reciprocity
    JEL: D01 D02 D82 D86 J41
    Date: 2019–03
  6. By: Ana María Díaz; Luz Magdalena Salas; Luz Magdalena Salas
    Abstract: Firms statistically discriminate (redline) against job candidates based on where they live. We conducted a correspondence test by sending three identical fictitious resumes to every non professional job offer posted in two main job vacancy newspapers in Bogota. The only difference between the resumes was the residential address in which the applicants lived. Two of the three resumes sent in each trio were located at the same commuting time (and geographical distance) from the job, but one resided in a low-crime neighborhood and the other in a high-crime neighborhood. The third resume was for a fictitious individual located in a low-crime neighborhood that is further away (longer commuting time and greater distance). Our experimental design allows us to explore whether employers discriminate against potential employees based on where they live, and if they do, which mechanisms are behind their discriminatory preferences. Building on the urban economics literature, we test two potential mechanisms: statistical discrimination due to negative signaling neighborhood effects and statistical discrimination based on commuting time to work. If any of these hold, we would expect employers to offer interviews to job applicants who reside in deprived or distant neighborhoods less often. We find that employers statistically discriminate (redline) based on commuting time to work. In particular, living one hour away from the vacancy reduces the callback rate by 32 percent while holding the attributes of the place of residence constant. We did not find evidence that employers respond to negative signaling effects or engages in taste based-discrimination.
    Keywords: statistical discrimination, productivity, employment, experiment, neighborhoods effects, spatial mismatch, correspondence test.
    JEL: C93 D22 J21 J23 J71 R23
    Date: 2019–02–25
  7. By: Danilov, Anastasia (University of Cologne); Irlenbusch, Bernd (University of Cologne); Harbring, Christine (RWTH Aachen University)
    Abstract: We study how help can be fostered by means of a team bonus in the presence of rank-order tournaments. In a simple model we combine elements of relative rewards and a team bonus and study their effect on effort, help and sabotage. Quite intuitively the theoretical analysis suggests that team members help less as relative rewards increase. This problem is mitigated by a team bonus that is proportional to the output of the whole team. We compare different parameter constellations of the theoretical benchmark with behavior observed in a one-shot experiment.
    Keywords: help, relative rewards, team incentives, experiment
    JEL: M52 J33 J41 L23 C72 C91
    Date: 2019–03
  8. By: Ana Carvalho (University of Minho: School of Economics and Management and NIPE); Joaquim Silva (University of Minho: School of Economics and Management)
    Abstract: In order to attract the best talent, it is vital for employers to understand the characteristics and preferences of their applicant pool. Very little is known to date about the Portuguese millennial generation, despite knowledge about young graduates entering the job market is of particular interest to employers. Previous studies have found that work preferences vary across generations and national cultures, justifying regular and localized examination. We therefore surveyed over 2,500 Portuguese millennials attending undergraduate and postgraduate university degrees and present a portrait of their work preferences. We find that career development opportunities are the prime concern of Portuguese millennials, who also value a workplace that provides both positive social relations and interesting and exciting work. Some intra-generational differences are noted, namely in terms preferences for employer size and work location. Gender differences mark our results, with women expressing lower entry salary expectations. Implications for recruiting organizations are drawn.
    Keywords: millennials, work preferences, recruitment, university students, Portugal
    Date: 2018
  9. By: John T. Addison; Paulino Teixeira
    Abstract: This paper explores the relationship between trust and establishment performance. The outcome indicators are management’s assessment of the economic or financial situation of the workplace and its relative labor productivity. Trust is initially measured using the individual survey respondent’s assessment of the ‘contribution’ of the other side, the rating of the employee representative being favored over that of management as less subject to feedback from performance. Although the potential endogeneity of employee trust is taken into account, an improved measure is constructed from the discrepancy or dissonance between the assessments of the two sides as to the quality of industrial relations at the workplace. All trust measures are associated with improved establishment performance. However, there is no suggestion from specifications using the two more favored trust measures that any one type of formal workplace representation – either works councils or union bodies – is superior. Dissonance, if indeed exogenous, demonstrates that good industrial relations trump type of workplace representation.
    Keywords: trust, dissonance, workplace employee representation, economic/financial performance, labor productivity
    JEL: J50
    Date: 2019
  10. By: Kaiser, Ulrich (University of Zurich); Kuhn, Johan Moritz (EPAC)
    Abstract: We compare individuals presently employed either at an university or at a firm from a R&D intensive sector and analyze which of their personal-specific and employer-specific characteristics determine their choice of subsequently founding a startup. Our data set is unusually rich and combines the population of Danish employees with their present employers. We focus on persons who at least hold a Bachelor's degree in engineering, sciences and health and track them over the time period 2001-2012. We show that (i) there are overall little differences between the characteristics of university and corporate startup entrepreneurs, (ii) common factors triggering startup activity of both university and corporate employees are education, top management team membership, previous job mobility and being male, (iii) it is exclusively human capital-related characteristics that affect startup choice of university employees while (iv) the characteristics of the present workplace constitute major factors of entrepreneurial activity.
    Keywords: university startups, corporate startups, founder characteristics
    JEL: L26 I23 O31 O32
    Date: 2019–03
  11. By: Chika Yamanami (PhD student, Osaka School of International Public Policy, Osaka University)
    Abstract: This paper studies the relationship between non-cognitive ability and productivity through analyzing the influence of workers' willingness to compete on their annual income and work motivation. Willingness to compete is important, like other non-cognitive abilities, in the sense that it can affect lifetime income through job selection. Willingness to compete can be determined not only by inherent factors, but also by the growing environment, especially by an exogenous economic shock such as the recession of the country in adolescence. Utilizing the fact that an adolescent experience of exogenous economic recession makes people avoid competition, this paper examines the effect of willingness to compete on work performance in Japan, by instrumental variable estimation with the timing of recession as an instrument for willingness to compete. After we confirmed that the willingness to compete is discouraged when experiencing recession in adolescence, we show that willingness to compete increases work incentives among Japanese workers. That is, those who faced recession unfortunately during the adolescence become less motivated to work after avoiding competition in their work places.
    Date: 2019–03
  12. By: Wall, Larry D. (Federal Reserve Bank of Atlanta)
    Abstract: Although a number of steps have been taken to reduce the risk of financial stability, some significant weaknesses remain. This paper examines whether stricter regulation of incentive compensation is the missing piece needed to reduce risk to acceptable levels. Unfortunately, this review of the literatures on the relationship of risk to bank chief operating officer and bank employee compensation suggest both have some potential but that significant concerns remain in both cases. At this point, we cannot confidently say that compensation regulation is the missing piece.
    Keywords: incentive compensation; bank regulation
    JEL: G01 G21 G28
    Date: 2019–03–01

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