http://repub.eur.nl/res/concept/jel-M52/ Recent publications classified by JEL Code M52 en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/39189/ 2013-03-04T00:00:00Z This paper reports the results from a controlled field experiment designed to investigate the causal effect of public recognition on employee performance. We hired more than 300 employees to work on a three-hour data-entry task. In a random sample of work groups, workers unexpectedly received recognition after two hours of work. We find that recognition increases subsequent performance substantially, and particularly so when recognition is exclusively provided to the best performers. Remarkably, workers who did not receive recognition are mainly responsible for this performance increase. This result is consistent with workers having a preference for conformity. Bradler, C. Dur, A.J. Neckermann, S. Non, J.A. http://repub.eur.nl/res/pub/34712/ 2012-07-20T00:00:00Z We study career choice when competition for promotion is a contest. A more meritocratic profession always succeeds in attracting the highest ability types, whereas a profession with superior promotion benefits attracts high types only if the hazard rate of the noise in performance evaluation is strictly increasing. Raising promotion opportunities produces no systematic effect on the talent distribution, while a higher base wage attracts talent only if total promotion opportunities are sufficiently plentiful Morgan, J. Sisak, D. Vardy, F. http://repub.eur.nl/res/pub/32667/ 2012-05-16T00:00:00Z This paper studies how social relationships between managers and employees affect relational incentive contracts. To this end we develop a simple dynamic principal-agent model where both players may have feelings of altruism or spite toward each other. The contract may contain two types of incentives for the agent to work hard: a bonus and a threat of dismissal. We find that good social relationships undermine the credibility of a threat of dismissal but strengthen the credibility of a bonus. Among others, these two mechanisms imply that better social relationships sometimes lead to higher bonuses, while worse social relationships may increase productivity and players' utility in equilibrium. Dur, A.J. Tichem, J. http://repub.eur.nl/res/pub/32104/ 2012-04-10T00:00:00Z In many organizations, reward decisions depend on subjective performance evaluations. However, evaluating an employee's performance is often difficult. In this paper, we develop a model in which the employee is uncertain about his own performance and about the manager's ability to assess him. The manager gives an employee a performance appraisal with a view of affecting the employee's self perception, and the employee's perception of the manager's ability to assess performance. We examine how performance appraisals affect the employee's future performance. The predictions of our model are consistent with various empirical findings. These comprise (i) the observation that managers tend to give positive appraisals, (ii) the finding that on average positive appraisals motivate more than negative appraisals, and (iii) the observation that the effects of appraisals depend on the employee's perception of the manager's ability to assess performance accurately. Kamphorst, J.J.A. Swank, O.H. http://repub.eur.nl/res/pub/32031/ 2012-03-20T00:00:00Z The application of the classical "linear" model of incentive pay to the case when the noise is multiplicative to effort generates two predictions for a given strength of incentives: 1) more risk-averse workers will put in less effort, and 2) setting a performance target will weaken the negative risk aversion--effort link. The data from a real-effort laboratory experiment involving 85 student participants support both these predictions. Implications of the model and empirical findings to the literature on, and practice of, personnel management are discussed. Zubanov, N.V. http://repub.eur.nl/res/pub/25711/ 2011-08-01T00:00:00Z We conduct a field experiment in a large retail chain to test basic predictions of tournament theory regarding prize spread and noise. A random subset of the 208 stores participates in two-stage elimination tournaments. Tournaments differ in the distribution of prize money across winners of the first and second round of the tournament. As predicted by theory, we find that a more convex prize spread increases performance in the second round at the expense of first-round performance, although the magnitude of these effects is small. Moreover, the treatment effect is significantly larger for stores that historically have relatively stable performance as compared to stores with more noisy performance. Delfgaauw, J. Dur, A.J. Non, J.A. Verbeke, W.J.M.I. http://repub.eur.nl/res/pub/21864/ 2010-12-01T00:00:00Z We conduct a field experiment among 189 stores of a retail chain to study dynamic incentive effects of relative performance pay. Employees in the randomly selected treatment stores could win a bonus by outperforming three comparable stores from the control group over the course of four weeks. Treatment stores received weekly feedback on relative performance. Control stores were kept unaware of their involvement, so that their performance generates exogenous variation in the relative performance of the treatment stores. As predicted by theory, treatment stores that lag far behind do not respond to the incentives, while the responsiveness of treatment stores close to winning a bonus increases in relative performance. On average, the introduction of the relative performance pay scheme does not lead to higher performance. Delfgaauw, J. Dur, A.J. Non, J.A. Verbeke, W.J.M.I. http://repub.eur.nl/res/pub/17666/ 2010-01-05T00:00:00Z Using a formal principal-agent model, I investigate the relation between monetary gift-exchange and incentive pay, while allowing for worker heterogeneity. I assume that some agents care more for their principal when they are convinced that the principal cares for them. Principals can signal their altruism by offering a generous contract, consisting of a base salary and an output-contingent bonus. I find that principals signal their altruism by offering relatively weak incentives and a relatively high expected total compensation, but the latter does not necessarily hold. Furthermore, since some agents do not reciprocate the principal's altruism, the principal may find it optimal to write a contract that simultaneously signals his altruism and screens reciprocal worker types. I show that such a contract is characterised by excessively strong incentives and relatively high expected total compensation. Non, J.A. http://repub.eur.nl/res/pub/16809/ 2009-08-24T00:00:00Z This paper investigates whether observed executive compensation contracts are designed to provide risk-taking incentives in addition to effort incentives. We develop a stylized principal-agent model that captures the interdependence between firm risk and managerial incentives. We calibrate the model to individual CEO data and show that it can explain observed compensation practice surprisingly well. In particular, it justifies large option holdings and high base salaries. Our analysis suggests that options should be issued in the money. If tax effects are taken into account, the model is consistent with the almost uniform use of at-the-money stock options. We conclude that the provision of risk-taking incentives is a major objective in executive compensation practice. Dittmann, I. Yu, K-C. http://repub.eur.nl/res/pub/16517/ 2009-07-31T00:00:00Z We ran a field experiment in a Dutch retail chain consisting of 128 stores. In a random sample of these stores, we introduced short-term sales competitions among subsets of stores. We find that sales competitions have a large effect on sales growth, but only in stores where the store's manager and a large fraction of the employees have the same gender. Remarkably, results are alike for sales competitions with and without monetary rewards, suggesting a high symbolic value of winning a tournament. Lastly, despite the substantial variation in team size, we find no evidence for free-riding. Delfgaauw, J. Dur, A.J. Sol, J. Verbeke, W.J.M.I. http://repub.eur.nl/res/pub/16515/ 2009-07-29T00:00:00Z We assess whether public sector employees have a stronger inclination to serve others and are more risk averse than employees in the private sector. A unique feature of our study is that we use revealed rather than stated preferences data. Respondents of a large-scale survey were offered a substantial reward and could choose between a widely redeemable gift certificate, a lottery ticket, or making a donation to a charity. Our analysis shows that public sector employees are significantly less likely to choose the risky option (lottery) and, at the start of their career, significantly more likely to choose the pro-social option (charity). However, when tenure increases, this difference in pro-social inclinations disappears and, later on, even reverses. Our results further suggest that quite a few public sector employees do not contribute to charity because they feel that they already contribute enough to society at work for too little pay. Buurman, M.W.J.M. Dur, A.J. Bossche, S. van den http://repub.eur.nl/res/pub/14035/ 2008-09-03T00:00:00Z We study optimal incentive contracts for workers who are reciprocal to management attention. When neither worker's effort nor manager's attention can be contracted, a double moral-hazard problem arises, implying that reciprocal workers should be given weak financial incentives. In a multiple-agent setting, this problem can be resolved using promotion incentives. We test these predictions using German Socio-Economic Panel data. We find that workers who are more reciprocal are significantly more likely to receive promotion incentives, while there is no such relation for individual bonus pay. Dur, A.J. Non, J.A. Roelfsema, H.J. http://repub.eur.nl/res/pub/27800/ 2008-05-01T00:00:00Z A worker's utility may increase with his income, but envy can make his utility decline with his employer's income. This article uses a principal-agent model to study profit-maximizing contracts when a worker envies his employer. Envy tightens the worker's participation constraint and so calls for higher pay and/or a softer effort requirement. Moreover, a firm with an envious worker can benefit from profit sharing, even when the worker's effort is fully contractible. We discuss several applications of our theoretical work: envy can explain why a lower-level worker is awarded stock options, why incentive pay is lower in nonprofit organizations, and how governmental production of a good can be cheaper than private production. Dur, A.J. Glazer, A. http://repub.eur.nl/res/pub/10067/ 2007-05-10T00:00:00Z In recent years it has become increasingly important for companies to ensure strategically aligned behaviour, i.e., employee actions that are consistent with the company’s strategy. This study provides insights into the way companies can stimulate such behaviour through motivating and informing their employees, and by providing them with the necessary capabilities. The results of surveys conducted in three organisations suggest that motivating, informing, and providing the necessary capabilities are essential conditions for strategically aligned behaviour to occur; however, this only holds when a company has not sufficiently engaged in one or more of these practices in the past. For example, in the case that employees have already been sufficiently informed about the company’s strategy, it would be of greater benefit to then reduce efforts to inform them and increase efforts to motivate and develop capabilities. Riel, C.B.M. van Berens, G.A.J.M. Dijkstra, M. http://repub.eur.nl/res/pub/6649/ 2004-11-15T00:00:00Z A worker's utility may increase in his own income, but envy can make his utility decline with his employer's income. Such behavior may call for high-powered incentives, so that increased effort by the worker little increases the income of his employer. This paper employs a principal-agent model to study optimal incentive contracts for envious workers under various assumptions about the object and generality of envy. Envy amplifies the effect of incentives on effort and, therefore, increases optimal incentive pay. Moreover, envy can make profit-sharing optimal, even when the worker's effort is fully contractible. We discuss several applications of our theoretical work. For example, envy can explain why lower-level workers are awarded stock options, why incentive pay is usually lower in non-profit organizations, and higher in larger firms. Envy may also make governmental production of a good more efficient than private production. Dur, A.J. Glazer, A. http://repub.eur.nl/res/pub/177/ 2002-03-06T00:00:00Z Estimation results in linear regression models are sometimes in contrast with what was expected on the basis of a certain set of hypotheses or theory, in the sense that one or more parameters have the "wrong sign". One could be inclined to think that this is due to collinearity across explanatory variables, suggesting one should leave out one or more of the collinear variables. In this note we show that this is not a valid approach. Additionally, we show that "wrong signs" can occur because of correlations between included and omitted variables, so that "wrong signs" may occur if the model is not correctly specified. That is, if we find 'wrong signs" we should start questioning our model choice, not the data. Franses, Ph.H.B.F. Heij, C.