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Three-Way Complementarities: Performance Pay, Human Resource Analytics, and Information Technology


  • Sinan Aral

    () (Stern School of Business, New York University, New York, New York 10012)

  • Erik Brynjolfsson

    () (MIT Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142)

  • Lynn Wu

    () (MIT Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142)


We test for three-way complementarities among information technology (IT), performance pay, and human resource (HR) analytics practices. We develop a principal-agent model examining how these practices work together as an incentive system that produces a larger productivity premium when the practices are implemented in concert rather than separately. We assess our model by combining fine-grained data on human capital management (HCM) software adoption over 11 years with detailed survey data on incentive systems and HR analytics practices for 189 firms. We find that the adoption of HCM software is greatest in firms that have also adopted performance pay and HR analytics practices. Furthermore, HCM adoption is associated with a large productivity premium when it is implemented as a system of organizational incentives, but has less benefit when adopted in isolation. The system of three-way complements produces disproportionately greater benefits than pairwise interactions, highlighting the importance of including all three complements. Productivity increases significantly when the HCM systems "go live" but not when they are purchased, which can be years earlier. This helps rule out reverse causality as an explanation for our findings. This paper was accepted by Sandra Slaughter, information systems.

Suggested Citation

  • Sinan Aral & Erik Brynjolfsson & Lynn Wu, 2012. "Three-Way Complementarities: Performance Pay, Human Resource Analytics, and Information Technology," Management Science, INFORMS, vol. 58(5), pages 913-931, May.
  • Handle: RePEc:inm:ormnsc:v:58:y:2012:i:5:p:913-931

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    References listed on IDEAS

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    Cited by:

    1. Gunasekaran, Angappa & Subramanian, Nachiappan & Papadopoulos, Thanos, 2017. "Information technology for competitive advantage within logistics and supply chains: A review," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 99(C), pages 14-33.
    2. Rasel, Fabienne, 2014. "Combining technology and work organization: An analysis of complementarity between IT and decentralization across firms of different size," ZEW Discussion Papers 14-071, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Prasanna Tambe & Lorin M. Hitt & Erik Brynjolfsson, 2012. "The Extroverted Firm: How External Information Practices Affect Innovation and Productivity," Management Science, INFORMS, vol. 58(5), pages 843-859, May.
    4. Michael Beckmann & Thomas Cornelissen, 2014. "Self-Managed Working Time and Employee Effort: Microeconometric Evidence," SOEPpapers on Multidisciplinary Panel Data Research 636, DIW Berlin, The German Socio-Economic Panel (SOEP).
    5. Grabner, Isabella & Moers, Frank, 2013. "Management control as a system or a package? Conceptual and empirical issues," Accounting, Organizations and Society, Elsevier, vol. 38(6), pages 407-419.
    6. Cordella, Antonio & Cordella, Tito, 2017. "Motivations, monitoring technologies, and pay for performance," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 236-255.
    7. Richard Fabling & Arthur Grimes, 2016. "Picking up speed: Does ultrafast broadband increase firm productivity?," Working Papers 16_22, Motu Economic and Public Policy Research.
    8. Sadaf Bashir & Uwe Matzat & Bert Sadowski, 2014. "The Adoption of Information and Communication Technologies in the Design Sector and their impact on Firm Performance: Evidence from the Dutch Design Sector," Working Papers 14-01, Eindhoven Center for Innovation Studies, revised Feb 2014.
    9. Bashir, Sadaf & Sadowski, B. M., 2014. "General purpose technologies: A survey, a critique and future research directions," 25th European Regional ITS Conference, Brussels 2014 101443, International Telecommunications Society (ITS).
    10. Peter Cappelli & Martin Conyon, 2016. "What Do Performance Appraisals Do?," NBER Working Papers 22400, National Bureau of Economic Research, Inc.
    11. Paloma Almodóvar & Javier Saiz-Briones & Brian Silverman, 2014. "Learning through foreign market participation: the relative benefits of exporting, importing, and foreign direct investment," The Journal of Technology Transfer, Springer, vol. 39(6), pages 915-944, December.
    12. repec:spr:reaccs:v:22:y:2017:i:4:d:10.1007_s11142-017-9420-4 is not listed on IDEAS
    13. Erik Brynjolfsson & Kristina McElheran, 2016. "Data in Action: Data-Driven Decision Making in U.S. Manufacturing," Working Papers 16-06, Center for Economic Studies, U.S. Census Bureau.


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