Performance, Promotion, and the Peter Principle
AbstractThis paper considers why organizations use promotions, rather than just monetary bonuses, to motivate employees even though this may conflict with efficient assignment of employees to jobs. When performance is unverifiable, use of promotion reduces the incentive for managers to be affected by influence activities that would blunt the effectiveness of monetary bonuses. When employees are risk neutral, use of promotion for incentives need not distort assignments. When they are risk averse, it may - sufficient conditions for this are given. The distortion may be either to promote more employees than is efficient (the Peter Principle effect) or fewer.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 9926.
Length: 29 pages
Date of creation: 2000
Date of revision:
MONEY ; MANAGEMENT ; RISK;
Other versions of this item:
- James Malcomson & James A. Fairburn, 2000. "Performance, Promotion, and the Peter Principle," Economics Series Working Papers 26, University of Oxford, Department of Economics.
- Fairburn, J.A. & Malcomson, J.M., 1995. "Performance, Promotion, and the Peter Principle," UFAE and IAE Working Papers 304.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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