nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2021‒12‒20
five papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. Ceo pay and the rise of relative performance contracts: A question of governance? By Bell, Brian; Pedemonte, Simone; Van Reenen, John
  2. Gender Biases in Performance Evaluation: The Role of Beliefs versus Outcomes By Nisvan Erkal; Lata Gangadharan; Boon Han Koh
  3. Job separation and sick leave in the long-term care sector in England By Vadean, Florin; Saloniki, Eirini
  4. Goals and guesses as reference points: A field experiment on student performance By Gerardo Sabater-Grande; Nikolaos Georgantzís; Noemí Herranz-Zarzoso
  5. It’s the value that we bring: performance pay and top income earners’ perceptions of inequality By Hecht, Katharina

  1. By: Bell, Brian; Pedemonte, Simone; Van Reenen, John
    Abstract: We exploit the large rise in relative performance awards in the United Kingdom over the last two decades to investigate whether these contracts improve the alignment between CEO pay and firm performance. We first document that corporate governance appears to be stronger when institutional ownership is greater. Then, using hand-collected data from annual reports on explicit contracts, we show that (1) CEO pay still responds more to increases in the firms' stock performance than to decreases, and, importantly, this asymmetry is stronger when corporate governance is weak as measured by low institutional ownership; and (2) "pay for luck"persists 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 major reason why relative performance contracts do not eliminate 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 in weakly governed firms. We show the mechanism operates both through the quantum of shares and the structure of new contracts. These findings suggest that reforms to the formal structure of CEO pay contracts are unlikely to align incentives in the absence of strong corporate governance.
    JEL: N0 R14 J01
    Date: 2021–10–14
  2. By: Nisvan Erkal (University of Melbourne); Lata Gangadharan (Monash University); Boon Han Koh (University of East Anglia)
    Abstract: We investigate whether gender distorts performance evaluation in environments where outcomes are determined by leaders’ unobservable effort choices and luck. Evaluators form beliefs about effort choices and make discretionary payment decisions. We find that while the discretionary payments made to male leaders are determined by both outcomes and evaluators’ beliefs, those made to female leaders are determined by outcomes only. Hence, beliefs are a source of gender biases in our decision-making environment not because they are biased, but because they play differential roles in female and male leaders’ discretionary payments. We label this new source of gender bias as the gender belief-outcome gap. These findings further our understanding of the factors driving gender gaps in leadership and performance pay. They imply that in the labor market, good outcomes are necessary for women to get bonuses, but men can receive bonuses for bad outcomes as long as evaluators hold them in high regard.
    Keywords: Gender gaps; Performance evaluation; Biases in belief updating; Outcome bias; Social preferences; Laboratory experiments
    JEL: C92 D91 J71
    Date: 2021–12–08
  3. By: Vadean, Florin; Saloniki, Eirini
    Abstract: Staff turnover in the long-term care (LTC) sector in England is perceived to be relatively high. Most job leavers do not leave the sector, but rather move to other LTC employers. Nevertheless, there are concerns that the high 'churn' has a negative impact on continuity and quality of care, care providers' recruitment and training costs, and the remaining staff workload and motivation. Using a large employer-employee panel dataset, this study aimed to provide quantitative evidence on the drivers of LTC staff retention and sick leave in England, with a focus on job quality. After controlling for observed individual, organisational and local market characteristics as well as unobserved worker and employer heterogeneity, we found that, everything else being equal, wages and employment conditions (i.e. full time contracts and contracts with guaranteed working hours) significantly improve staff retention. The wage effect was significantly underestimated when not controlling for unobserved heterogeneity. Our findings show that improving pay and employment conditions for care staff employed by independent providers would reduce the staff turnover in LTC. We also found that, everything else being equal, the amount of sick leave was strongly associated with employment in publicly owned care establishments, most likely due to the relatively more generous sick leave terms they offer.
    Keywords: job separation,long-term care,job quality,sick leave,England
    JEL: C23 J31 J63 J81
    Date: 2021
  4. By: Gerardo Sabater-Grande (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Nikolaos Georgantzís (WSB Lab and School of Wine and Spirits Business, Burgundy School of Business, Dijon, France and LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Noemí Herranz-Zarzoso (LEE, Universitat Jaume I, Castellón, and Department of Economic Analysis, Universitat de València, Spain)
    Abstract: In this paper, we study overconfidence and goal-setting in academic performance, with and without monetary incentives. Students enrolled in a Microeconomics course were offered the possibility of setting their own target grade before taking part in the final exam. They were also asked to guess their grade immediately after they had taken the exam (“post-diction”). In general, students overestimated their performance, both at the goal-setting and at the post-diction stages. Controlling for several sources of this bias (cognitive abilities, academic record, risk preferences and self-reported academic confidence), we find that the use of monetary rewards mitigates the overestimation of potential achievements and eliminates overestimation of actual achievements through the improvement of actual performance. Our results suggest that monetary incentives do not cause subjects to put more effort into correct guesses but makes them put more effort into academic performance. Using students’ academic records to measure overall skill, we find a strong Dunning-Kruger bias which is intensified in the presence of monetary rewards.
    Keywords: overconfidence bias, reference points, self-chosen goals, post-dictions, monetary incentives, Dunning-Kruger cognitive bia
    JEL: C93 D03
    Date: 2021
  5. By: Hecht, Katharina
    Abstract: Though the literature on perceptions of inequality and studies of ‘elites’ have identified the importance of meritocratic beliefs in legitimating inequality, little is known about the role of pay setting processes in sustaining ideals of meritocracy. Drawing on 30 in-depth interviews with UK-based top income earners working mainly in finance, I analyse how top income earners perceive economic inequality. My study highlights the crucial role of performance pay for perceptions that top incomes are meritocratically deserved. Participants expressed the view that performance pay, an increasingly prevalent pay-setting practice, ensures that top incomes reflect a share of economic ‘value created’ for shareholders, clients or investors. Focusing on narrow, economic criteria of evaluation perceived as objective, the majority of respondents (‘performance pay meritocrats’) justified any income difference as deserved if it reflects economic contribution. Meanwhile, a minority of respondents (‘social reflexivists’) applied broader evaluative criteria including distributive justice and social contributions.
    Keywords: OUP deal
    JEL: N0
    Date: 2021–10–25

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