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The rise of individual performance pay

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Author Info

  • Kvaløy, Ola

    ()
    (University of Stavanger)

  • Olsen, Trond

    (Norwegian School of Economics and Business Administration)

Abstract

Why does individual performance pay seem to prevail in human-capital-intensive industries where teamwork is so common? We present a model that aims to explain this. In a repeated game model of relational contracting, we analyze the conditions for implementing peerdependent incentive regimes when agents possess indispensable human capital. We show that the larger the share of values that the agents can hold-up, the lower is the implementable degree of peer-dependent incentives. In a setting with team effects - complementary tasks and peer pressure, respectively - we show that while group-based incentives are optimal if agents are dispensable, it may be costly, and in fact suboptimal, to provide team incentives once the agents become indispensable.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by University of Stavanger in its series UiS Working Papers in Economics and Finance with number 2009/3.

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Length: 33 pages
Date of creation: 15 Dec 2008
Date of revision:
Handle: RePEc:hhs:stavef:2009_003

Contact details of provider:
Postal: University of Stavanger, NO-4036 Stavanger, Norway
Web page: http://www.uis.no/research/economics_and_finance
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Related research

Keywords: Relational contracts; Multiagent Moral Hazard; Indispensable human capital;

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References

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Citations

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Cited by:
  1. Ola Kvaløy & Trond E. Olsen, 2008. "Cooperation in Knowledge-Intensive Firms," Journal of Human Capital, University of Chicago Press, vol. 2(4), pages 410-440.
  2. Ola Kvaløy & Trond E. Olsen, 2008. "Relative performance evaluation, agent hold-up and firm organization," NBER Chapters, in: Organizational Innovation and Firm Performance, pages 229-241 National Bureau of Economic Research, Inc.
  3. Daniel Ladley & Ian Wilkinson & Louise Young, 2013. "The Evolution Of Cooperation In Business: Individual Vs. Group Incentives," Discussion Papers in Economics 13/14, Department of Economics, University of Leicester.

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