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Contingent pay and managerial performance

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  • Lawrence M. Kahn
  • Peter D. Sherer

Abstract

This paper uses longitudinal data on managers from one company to examine the relationship between financial incentives and performance. One important finding is that bonuses for managers who are in high-level positions, work at corporate headquarters, and have low seniority are more sensitive to performance than are the bonuses given to managers without those three characteristics. A second important finding is that the managers for whom bonuses are most sensitive to performance have higher subsequent performance levels than other managers, even when past performance levels are controlled for. Merit pay, in contrast to bonuses, appears to be awarded on the same basis across managerial levels, plant locations, and seniority levels, and differences in the sensitivity of merit pay to performance appear to have no significant effect on subsequent performance. (Abstract courtesy JSTOR.)

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Bibliographic Info

Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

Volume (Year): 43 (1990)
Issue (Month): 3 (February)
Pages: 107-120

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Handle: RePEc:ilr:articl:v:43:y:1990:i:3:p:107-120

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Cited by:
  1. Michael T. Rauh & Giulio Seccia, 2005. "Incentives, Monitoring, and Motivation," Game Theory and Information, EconWPA 0506008, EconWPA.
  2. Florian Englmaier & Ales Filipi & Ravi Singh, 2010. "Incentives, Reputation and the Allocation of Authority," CESifo Working Paper Series 2979, CESifo Group Munich.
  3. Davila, Tony, 2000. "Performance and the Design of Economic Incentives in New Product Development," Research Papers, Stanford University, Graduate School of Business 1647, Stanford University, Graduate School of Business.
  4. Judith Chevalier & Glenn Ellison, 1999. "Career Concerns Of Mutual Fund Managers," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(2), pages 389-432, May.
  5. John M. Abowd & David S. Kaplan, 1999. "Executive Compensation: Six Questions that Need Answering," NBER Working Papers 7124, National Bureau of Economic Research, Inc.
  6. Canice Prendergast, 1996. "What Happens Within Firms? A Survey of Empirical Evidence on Compensation Policies," NBER Working Papers 5802, National Bureau of Economic Research, Inc.
  7. Davila, Antonio, 2003. "Short-term economic incentives in new product development," Research Policy, Elsevier, Elsevier, vol. 32(8), pages 1397-1420, September.
  8. Peter Egger & Doina Maria Radulescu, 2011. "Labor Taxation and Foreign Direct Investment," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 113(3), pages 603-636, 09.
  9. Chiang, Flora F.T. & Birtch, Thomas A., 2005. "A taxonomy of reward preference: Examining country differences," Journal of International Management, Elsevier, Elsevier, vol. 11(3), pages 357-375, September.
  10. Robert Gibbons, 1996. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc.
  11. Christian Pfeifer, 2012. "Base Salaries, Bonus Payments, and Work Absence among Managers in a German Company," Working Paper Series in Economics, University of Lüneburg, Institute of Economics 259, University of Lüneburg, Institute of Economics.
  12. Engellandt, Axel & Riphahn, Regina T., 2004. "Incentive Effects of Bonus Payments: Evidence from an International Company," IZA Discussion Papers 1229, Institute for the Study of Labor (IZA).
  13. Nick Zubanov & W.S. Siebert, 2009. "Management economics in a large UK retailer," CPB Discussion Paper, CPB Netherlands Bureau for Economic Policy Analysis 125, CPB Netherlands Bureau for Economic Policy Analysis.

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