Promotion Tournaments and Individual Performance Pay
Abstract"We analyze the optimal combination of promotion tournaments and linear individual performance pay in an employment relationship. An agent's effort is nonobservable and he has private information about his suitability for promotion. Thus, the two incentive schemes need to be combined to serve both incentive and selection purposes. If harder working agents respond less to intensified effort incentives, we find that the principal puts less emphasis on individual performance pay when selection becomes more important. Thus, we provide a possible explanation as to why, in practice, individual performance pay is less prevalent than promotion-based incentives." Copyright (c) 2010 Wiley Periodicals, Inc..
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 19 (2010)
Issue (Month): 3 (09)
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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/
Other versions of this item:
- Anja Schöttner & Veikko Thiele, 2007. "Promotion Tournaments and Individual Performance Pay," SFB 649 Discussion Papers SFB649DP2007-045, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
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