nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2022‒10‒24
five papers chosen by
Patrick Kampkötter
Eberhard Karls Universität Tübingen

  1. Which Peer Group to Choose? The Effects of Relative Performance Information on Employee Self-Selection and Performance By Petra Nieken; Anna Ressi
  2. Are Managers Paid for Market Power? By Renjie Bao; Jan de Loecker; Jan Eeckhout
  3. The Allocation of Incentives in Multi-Layered Organizations By Erika Deserranno; Stefano Caria; Philipp Kastrau; Gianmarco León-Ciliotta
  4. Measuring "Group Cohesion" to Reveal the Power of Social Relationships in Team Production By Simon Gaechter; Chris Starmer; Fabio Tufano
  5. It Hurts To Ask By Roland Bénabou; Ania Jaroszewicz; George Loewenstein

  1. By: Petra Nieken; Anna Ressi
    Abstract: This paper reports results of two controlled experiments on the behavioural effects of relative performance information (RPI) in different organizational structures. Our baseline study 1 focuses on a centralized organizational structure where employees are exogenously assigned to either a high-performing or a low-performing peer group. We find that RPI boosts performances when employees are assigned to the low-performing group. In contrast, when assigned to the high-performing group, our results point to a discouragement effect of RPI that can be attributed to low-performers. In study 2, we show that this or similarly undesired effects do not play a crucial role under a decentralized organizational structure where employees can self-select. In fact, we demonstrate that RPI especially induces employees with a relatively low performance to voluntarily choose the high-performing group. Analyzing subsequent performances suggests that providing self-selection options allows employees to use the high-performing group as a self-set target to spur motivation.
    Keywords: peer groups, self-selection, reference points, relative performance information
    JEL: C91 D83 D91 M52
    Date: 2022
  2. By: Renjie Bao; Jan de Loecker; Jan Eeckhout
    Abstract: To answer the question whether managers are paid for market power, we propose a theory of executive compensation in an economy where firms have market power, and the market for managers is competitive. We identify two distinct channels that contribute to manager pay in the model: market power and firm size. Both increase the profitability of the firm, which makes managers more valuable as it increases their marginal product. Using data on executive compensation from Compustat, we quantitatively analyze how market power affects Manager Pay and how it changes over time. We attribute on average 45.8% of Manager Pay to market power, from 38.0% in 1994 to 48.8% in 2019. Over this period, market power accounts for 57.8% of growth. We also find there is a lot of heterogeneity within the distribution of managers. For the top managers, 80.3% of their pay in 2019 is due to market power. Top managers are hired disproportionately by firms with market power, and they get rewarded for it, increasingly so.
    Keywords: market power, manager pay, executive compensation, markups, reallocation, superstars
    JEL: C6 D4 D5 L1
    Date: 2022–04
  3. By: Erika Deserranno; Stefano Caria; Philipp Kastrau; Gianmarco León-Ciliotta
    Abstract: A classic problem faced by organizations is to decide how to distribute incentives among their different layers. By means of a field experiment with a large public-health organization in Sierra Leone, we show that financial incentives maximize output when they are equally shared between frontline health workers and their supervisor. The impact of this intervention on completed health visits is 61% larger than the impact of incentive schemes that target exclusively the worker or the supervisor. Also, the shared incentives uniquely improve overall health-service provision and health outcomes. We use these experimental results to structurally estimate a model of service provision and find that shared incentives are effective because worker and supervisor effort are strong strategic complements, and because side payments across layers are limited. Through the use of counterfactual model experiments, we highlight the importance of effort complementarities across the different layers of an organization for optimal policy design.
    Keywords: Incentives, multi-layered organizations, effort complementarities, side payments, output
    JEL: O15 O55 I15 J31 M52
    Date: 2022–04
  4. By: Simon Gaechter; Chris Starmer; Fabio Tufano
    Abstract: We introduce “group cohesion” to study the economic relevance of social relationships in team production. We operationalize measurement of group cohesion, adapting the “oneness scale” from psychology. A series of experiments, including a pre-registered replication, reveals strong positive associations between group cohesion and performance assessed in weak-link coordination games, with high-cohesion groups being very likely to achieve superior equilibria. In exploratory analysis, we identify beliefs rather than social preferences as the primary mechanism through which factors proxied by group cohesion influence group performance. Our evidence provides proof-of-concept for group cohesion as a useful tool for economic research and practice.
    Keywords: team work, group cohesion, social relationships, coordination, weak link games, experiments
    JEL: C92 D91
    Date: 2022
  5. By: Roland Bénabou; Ania Jaroszewicz; George Loewenstein
    Abstract: We analyze the offering, asking, and granting of help or other benefits as a three-stage game with bilateral private information between a person in need of help and a potential help-giver. Asking entails the risk of rejection, which can be painful: since unawareness of the need can no longer be an excuse, a refusal reveals that the person in need, or the relationship, is not valued very much. We show that a failure to ask can occur even when most helpers would help if told about the need, and that even though a greater need makes help both more valuable and more likely to be granted, it can reduce the propensity to ask. When potential helpers concerned about the recipient’s ask-shyness can make spontaneous offers, this can be a double-edged sword: offering reveals a more caring type and helps solve the failure-to-ask problem, but not offering reveals a not-so-caring one, and this itself deters asking. This discouragement effect can also generate a trap where those in need hope for an offer while willing helpers hope for an ask, resulting in significant inefficiencies.
    JEL: D03 D23 D64 D82 D83 D91
    Date: 2022–09

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