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Wage Structure and the Incentive Effect of Promotions

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Author Info

  • Marco van Herpen

    ()
    (Groningen University, and BCG)

  • Kees Cools

    ()
    (Groningen University, and BCG)

  • Mirjam van Praag

    ()
    (Faculty of Economics and Econometrics, Universiteit van Amsterdam)

Abstract

This paper studies wage structure characteristics and their incentive effects within one firm. Based on personnel records and an employee survey, we provide evidence that wages are attached to jobs and that promotions play a dominant role as a wage determinant. We furthermore show that a promotion affects both intrinsic and extrinsic motivation significantly, though in two different ways: An expected promotion increases extrinsic motivation whereas intrinsic motivation is highest subsequent to a realized promotion. The relationship between extrinsic motivation and expected promotions implies that promotions have a clear incentive effect, consistent with a key – not yet tested – prediction of the tournament model. This discussion paper has resulted in a publication in Kyklos International Review for Social Science , 2006, 59(3), 441-59.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-107/3.

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Date of creation: 23 Sep 2004
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Handle: RePEc:dgr:uvatin:20040107

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Web page: http://www.tinbergen.nl

Related research

Keywords: promotions; incentives; tournament model; internal labor market; extrinsic motivation; intrinsic motivation;

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Cited by:
  1. Becchetti, Leonardo & Castriota, Stefano, 2010. "Wage differentials in social enterprises," AICCON Working Papers, Associazione Italiana per la Cultura della Cooperazione e del Non Profit 68-2010, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
  2. Marco Herpen & Mirjam Praag & Kees Cools, 2005. "The Effects of Performance Measurement and Compensation on Motivation: An Empirical Study," De Economist, Springer, Springer, vol. 153(3), pages 303-329, 09.

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