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

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  • Christian Belzil

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

  • Michael Bognanno

    (Department of economics - Temple University)

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://halshs.archives-ouvertes.fr/halshs-00142838
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    References listed on IDEAS

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    1. Thomas J. Dohmen & Ben Kriechel & Gerard A. Pfann, 2004. "Monkey bars and ladders: The importance of lateral and vertical job mobility in internal labor market careers," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(2), pages 193-228, June.
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    6. Bognanno, Michael L, 2001. "Corporate Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 290-315, April.
    7. Canice Prendergast, 1998. "What Happens within Firms? A Survey of Empirical Evidence on Compensation Policies," NBER Chapters,in: Labor Statistics Measurement Issues, pages 329-356 National Bureau of Economic Research, Inc.
    8. Jonathan S. Leonard, 1990. "Executive Pay and Firm Performance," ILR Review, Cornell University, ILR School, vol. 43(3), pages 13, April.
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    Cited by:

    1. 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.
    2. 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

    earning growth; promotion; reputation;

    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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