Strategic Promotion and Compensation
AbstractWithin a hierarchical firm structure, this paper details how the composition of a worker's skills and the nonobservability of a worker's ability affect wage and promotion paths. Promotion-based compensation schemes derive naturally from the worker's asymmetrically observed ability. Promotion takes place over time and is inefficient since employers strategically exploit their knowledge of an able worker's ability. Conversely, employers may be unable to efficiently demote and retain bad managers without paying bonuses. Employers are led to promote educated employees before their more able, but uneducated, counterparts. Explanations for fast-track promotions plans and other empirical regularities are provided. Copyright 1995 by The Review of Economic Studies Limited.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 62 (1995)
Issue (Month): 2 (April)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
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