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Incentive Life-cycles: Learning and the Division of Value in Firms

Author

Listed:
  • Tomasz Obloj

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Metin Sengul

    (BC - Boston College)

Abstract

In this paper, we study the individual and organizational learning mechanisms leading to the evolution of the division of value between economic actors under a given contractual arrangement. Focusing on the division of value between a firm and its employees, we theorize that following a change in the organizational incentive structure, employees learn, over time and with experience, how to be more productive under the implied objectives of the incentive regime, as well as how to game or exploit it. Results, based on outlet-level data from a Polish commercial bank over a 13-month period, show that the bank outlets' value creation (sales revenue from primary loans) and value appropriation (the sum of outlet employees' monthly bonus) both increased, at a decreasing rate, over time as outlet employees gained experience under the new incentive regime. In parallel, the bank's share (the percentage of value created by outlets retained by the bank) increased at first, then, after reaching a plateau, decreased continuously, indicating that the ability of the incentive regime to induce the intended results evolved, giving rise to an incentive life-cycle. In exploring the underlying micromechanisms, we found strong quantitative and qualitative evidence for the presence and relative paces of productive and adverse learning in bank outlets, as well as for the role of prior experience. This is the first empirical study to show that individual and organizational learning processes can influence the evolution of the division of value between economic actors.

Suggested Citation

  • Tomasz Obloj & Metin Sengul, 2012. "Incentive Life-cycles: Learning and the Division of Value in Firms," Post-Print hal-00731048, HAL.
    • Handle: RePEc:hal:journl:hal-00731048
    DOI: 10.1177/0001839212453833
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    Citations

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    Cited by:

    1. Obloj Krzysztof, 2019. "Footnotes to organizational competitiveness," Economics and Business Review, Sciendo, vol. 5(3), pages 35-49, September.
    2. Jillian Chown, 2020. "Financial Incentives and Professionals’ Work Tasks: The Moderating Effects of Jurisdictional Dominance and Prominence," Organization Science, INFORMS, vol. 31(4), pages 887-908, July.
    3. Timothy Gubler & Ian Larkin & Lamar Pierce, 2016. "Motivational Spillovers from Awards: Crowding Out in a Multitasking Environment," Organization Science, INFORMS, vol. 27(2), pages 286-303, April.
    4. Jason Sandvik & Richard Saouma & Nathan Seegert & Christopher Stanton, 2021. "Employee Responses to Compensation Changes: Evidence from a Sales Firm," Management Science, INFORMS, vol. 67(12), pages 7687-7707, December.
    5. Alan Benson, 2015. "Do Agents Game Their Agents' Behavior? Evidence from Sales Managers," Journal of Labor Economics, University of Chicago Press, vol. 33(4), pages 863-890.
    6. Flore Bridoux & Régis Coeurderoy & Rodolphe Durand, 2017. "Heterogeneous social motives and interactions: The three predictable paths of capability development," Strategic Management Journal, Wiley Blackwell, vol. 38(9), pages 1755-1773, September.
    7. Olivier Chatain & Philipp Meyer-Doyle, 2017. "Alleviating managerial dilemmas in human-capital-intensive firms through incentives: Evidence from M&A legal advisors," Strategic Management Journal, Wiley Blackwell, vol. 38(2), pages 232-254, February.
    8. Douglas H. Frank & Tomasz Obloj, 2014. "Firm‐specific human capital, organizational incentives, and agency costs: Evidence from retail banking," Strategic Management Journal, Wiley Blackwell, vol. 35(9), pages 1279-1301, September.
    9. Sunkee Lee & Philipp Meyer-Doyle, 2017. "How Performance Incentives Shape Individual Exploration and Exploitation: Evidence from Microdata," Organization Science, INFORMS, vol. 28(1), pages 19-38, February.
    10. Cédric Gutierrez & Thomas Åstebro & Tomasz Obloj, 2020. "The Impact of Overconfidence and Ambiguity Attitude on Market Entry," Organization Science, INFORMS, vol. 31(2), pages 308-329, March.
    11. Tomasz Obloj & Peter Zemsky, 2015. "Value creation and value capture under moral hazard: Exploring the micro-foundations of buyer– supplier relationships," Strategic Management Journal, Wiley Blackwell, vol. 36(8), pages 1146-1163, August.
    12. Tat Y. Chan & Jia Li & Lamar Pierce, 2014. "Compensation and Peer Effects in Competing Sales Teams," Management Science, INFORMS, vol. 60(8), pages 1965-1984, August.
    13. Francisco Brahm & Joaquin Poblete, 2018. "Incentives and Ratcheting in a Multiproduct Firm: A Field Experiment," Management Science, INFORMS, vol. 64(10), pages 4552-4571, October.
    14. Victor Manuel Bennett & Lamar Pierce & Jason A. Snyder & Michael W. Toffel, 2013. "Customer-Driven Misconduct: How Competition Corrupts Business Practices," Management Science, INFORMS, vol. 59(8), pages 1725-1742, August.
    15. Heinz, Matthias & Khashabi, Pooyan & Zubanov, Nick & Kretschmer, Tobias & Friebel, Guido, 2017. "Heterogeneous Effects of Performance Pay with Market Competition: Evidence from a Randomized Field Experiment," CEPR Discussion Papers 12474, C.E.P.R. Discussion Papers.
    16. Max Thon & Oliver Gürtler & Matthias Heinz & Kai Schäfer & Dirk Sliwka, 2024. "Strategic incentives in intermediary markets: Field-experimental evidence," ECONtribute Discussion Papers Series 297, University of Bonn and University of Cologne, Germany.

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