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Wage Structure and the Incentive Effect of Promotions

Author

Listed:
  • Marco van Herpen

    (Groningen University, and BCG)

  • Kees Cools

    (Groningen University, and BCG)

  • Mirjam van Praag

    (Faculty of Economics and Econometrics, Universiteit van Amsterdam)

Abstract

This paper studies wage structure characteristics and their incentive effects within one firm. Based on personnel records and an employee survey, we provide evidence that wages are attached to jobs and that promotions play a dominant role as a wage determinant. We furthermore show that a promotion affects both intrinsic and extrinsic motivation significantly, though in two different ways: An expected promotion increases extrinsic motivation whereas intrinsic motivation is highest subsequent to a realized promotion. The relationship between extrinsic motivation and expected promotions implies that promotions have a clear incentive effect, consistent with a key – not yet tested – prediction of the tournament model. This discussion paper has resulted in a publication in Kyklos International Review for Social Science , 2006, 59(3), 441-59.

Suggested Citation

  • Marco van Herpen & Kees Cools & Mirjam van Praag, 2004. "Wage Structure and the Incentive Effect of Promotions," Tinbergen Institute Discussion Papers 04-107/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20040107
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    Citations

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    Cited by:

    1. Migheli, Matteo, 2019. "Competing for promotion: Are “THE BEST” always the best?," Research in Economics, Elsevier, vol. 73(2), pages 149-161.
    2. Ottorino Chillemi & Stefano Galavotti & Benefetto Gui, 2017. "Inefficient Rationing With Post-Contractual Information," "Marco Fanno" Working Papers 0214, Dipartimento di Scienze Economiche "Marco Fanno".
    3. repec:cgr:cgsser:03-12 is not listed on IDEAS
    4. Jiang, Kun & Wang, Susheng, 2022. "Internal labor markets with two types of promotion and two tiers of salary: theory and evidence from China," China Economic Review, Elsevier, vol. 72(C).
    5. Leonardo Becchetti & Stefano Castriota, 2010. "Wage differentials in social enterprises," AICCON Working Papers 68-2010, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
    6. Juho Jokinen & Jaakko Pehkonen, 2017. "Promotions and Earnings – Gender or Merit? Evidence from Longitudinal Personnel Data," Journal of Labor Research, Springer, vol. 38(3), pages 306-334, September.
    7. Marco Herpen & Mirjam Praag & Kees Cools, 2005. "The Effects of Performance Measurement and Compensation on Motivation: An Empirical Study," De Economist, Springer, vol. 153(3), pages 303-329, September.
    8. Ting Ren, 2010. "Value Congruence as a Source of Intrinsic Motivation," Kyklos, Wiley Blackwell, vol. 63(1), pages 94-109, February.
    9. Yannis Georgellis & Vurain Tabvuma, 2010. "Does Public Service Motivation Adapt?," Kyklos, Wiley Blackwell, vol. 63(2), pages 176-191, May.

    More about this item

    Keywords

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    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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