Managerial Incentives and Favoritism in Promotion Decisions: Theory and Field Evidence
AbstractThis paper investigates the effects of managerial incentives on favoritism in promotion decisions. First, we theoretically show that favoritism leads to a lower quality of promotion decisions and in turn lower efforts. But the effect can be mitigated by pay-for-performance incentives for managers who decide upon promotion. Second, we analyze matched employer-employee survey data with detailed firm level information on managerial incentive schemes and find that perceived promotion quality is indeed substantially higher when managers receive performance-related pay or participate in gain sharing plans.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5543.
Length: 29 pages
Date of creation: Mar 2011
Date of revision:
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Find related papers by JEL classification:
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
- M54 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Labor Management
- J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-12 (All new papers)
- NEP-BEC-2011-03-12 (Business Economics)
- NEP-CBE-2011-03-12 (Cognitive & Behavioural Economics)
- NEP-CTA-2011-03-12 (Contract Theory & Applications)
- NEP-HRM-2011-03-12 (Human Capital & Human Resource Management)
- NEP-LAB-2011-03-12 (Labour Economics)
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