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Redesigning Teams and Incentives in a Merger: An Experiment with Managers and Students

  • Montmarquette, Claude

    ()

    (University of Montreal)

  • Rullière, Jean-Louis

    ()

    (University of Lyon 2)

  • Villeval, Marie Claire

    ()

    (CNRS, GATE)

  • Zeiliger, Romain

    ()

    (University of Lyon 2)

After a merger, company officials face the challenge of making compensation schemes uniform and of redesigning teams with managers from companies with different incentives, work habits and recruiting methods. In this paper, we investigate the relationship between executive pay and performance after a merger by dissociating the respective influence of shifts, which occur in both compensation incentives and team composition. The results of a real effort experiment conducted with managers within a large pharmaceutical company not only show that changes in compensation incentives affect performance but also suggest that the sorting effect of incentives in the previous companies impact cooperation and efficiency after the merger. Replicating this experiment with students showed differences in strategy rather than in substance between the two groups of subjects with managers appearing performance driven while students are more cost driven.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1057.

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Length: 53 pages
Date of creation: Mar 2004
Date of revision:
Publication status: published in: Management Science, 2004, 50 (10), 1379-1389
Handle: RePEc:iza:izadps:dp1057
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