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Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives

Author

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  • Christian Belzil

    (GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure-Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique)

  • Michael Bognanno

    (Department of economics - Temple University [Philadelphia] - Pennsylvania Commonwealth System of Higher Education (PCSHE))

Abstract

This paper explores the dynamics of wage growth in corporate hierarchies. Using panel data techniques, we estimate the causal effect of current and past transitions in reporting level and past earnings growth on components of current earnings and earnings growth using a large panel of US executives. After conditioning on unobserved heterogeneity, current compensation growth is positively correlated with past promotion outcomes but negatively correlated with past compensation growth. In a flexible model of wage growth, there is an important asymmetry between the effect of a promotion and a demotion. The effect of promotion is smaller in magnitude than the effect of a demotion. The causal effect of a promotion is positive on both growth in base pay and total cash compensation but is negative on bonus growth. The effect of a demotion is negative on growth in all pay components.

Suggested Citation

  • Christian Belzil & Michael Bognanno, 2006. "Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives," Post-Print halshs-00142838, HAL.
    • Handle: RePEc:hal:journl:halshs-00142838
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00142838v1
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    Cited by:

    1. Susana Cabrera & Enrique Fatás & Juan Lacomba & Tibor Neugebauer, 2013. "Splitting leagues: promotion and demotion in contribution-based regrouping experiments," Experimental Economics, Springer;Economic Science Association, vol. 16(3), pages 426-441, September.
    2. Elena Pastorino, 2012. "Careers in firms: estimating a model of learning, job assignment, and human capital aquisition," Staff Report 469, Federal Reserve Bank of Minneapolis.
    3. Frederiksen, Anders & Halliday, Timothy J. & Koch, Alexander K., 2010. "What Do We Work For? An Anatomy of Pre- and Post-Tax Earnings Growth," IZA Discussion Papers 5298, Institute of Labor Economics (IZA).
    4. Anders Frederiksen & Timothy Halliday & Alexander K. Koch, 2016. "Within- and Cross-Firm Mobility and Earnings Growth," ILR Review, Cornell University, ILR School, vol. 69(2), pages 320-353, March.
    5. Carrillo-Tudela, Carlos & Kaas, Leo, 2015. "Worker mobility in a search model with adverse selection," Journal of Economic Theory, Elsevier, vol. 160(C), pages 340-386.
    6. Pierre Fleckinger & David Martimort & Nicolas Roux, 2024. "Should They Compete or Should They Cooperate? The View of Agency Theory," Journal of Economic Literature, American Economic Association, vol. 62(4), pages 1589-1646, December.
    7. Frederiksen, Anders, 2013. "Incentives and earnings growth," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 97-107.
    8. Lackner, Mario & Stracke, Rudi & Sunde, Uwe & Winter-Ebmer, Rudolf, 2020. "Are competitors forward looking in strategic interactions? Field evidence from multistage tournaments," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 544-565.
    9. Shanglyu Deng & Hanming Fang & Qiang Fu & Zenan Wu, 2020. "Confidence Management in Tournaments," NBER Working Papers 27186, National Bureau of Economic Research, Inc.
    10. Steffen Altmann & Armin Falk & Matthias Wibral, 2012. "Promotions and Incentives: The Case of Multistage Elimination Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 149-174.
    11. Jed DeVaro & Antti Kauhanen & Nelli Valmari, 2019. "Internal and External Hiring," ILR Review, Cornell University, ILR School, vol. 72(4), pages 981-1008, August.
    12. Pema, Elda & Mehay, Stephen, 2010. "The role of job assignment and human capital endowments in explaining gender differences in job performance and promotion," Labour Economics, Elsevier, vol. 17(6), pages 998-1009, December.
    13. David Berri & Alex Farnell & Robert Simmons, 2023. "The determinants of Black quarterback pay in the National Football League," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1491-1503, April.
    14. Shanglyu Deng & Hanming Fang & Qiang Fu & Zenan Wu, 2020. "Confidence Management in Tournaments," NBER Working Papers 27186, National Bureau of Economic Research, Inc.
    15. Hryshko, Dmytro, 2014. "Correlated income shocks and excess smoothness of consumption," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 41-62.
    16. Yu, Jixiang & Shen, Kunrong, 2022. "Incentive effects of tournament size optimization on local officials in China," Journal of Asian Economics, Elsevier, vol. 83(C).
    17. António S. Ribeiro & Francisco Lima, 2019. "Football players’ career and wage profiles," Applied Economics, Taylor & Francis Journals, vol. 51(1), pages 76-87, January.
    18. Moeller, Marc & Drugov, Mikhail & Meyer, Margaret, 2024. "Selecting the Best: The Persistent Effects of Luck," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302345, Verein für Socialpolitik / German Economic Association.
    19. Lackner, Mario & Stracke, Rudi & Sunde, Uwe & Winter-Ebmer, Rudolf, 2015. "Are Competitors Forward Looking in Strategic Interactions? Evidence from the Field," Economics Series 319, Institute for Advanced Studies.
    20. Giovanni Russo & Wolter Hassink, 2008. "The Part-Time Wage Gap: a Career Perspective," De Economist, Springer, vol. 156(2), pages 145-174, June.

    More about this item

    Keywords

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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