Other-Regarding Preferences and Performance Pay – An Experiment on Incentives and Sorting Variable pay not only creates a link between pay and performance but may also help firms in attracting the more productive employees (Lazear 1986, 2000). However, due to lack of natural data, empirical analyses of the relative importance of the selection and incentive effects of pay schemes are so far thin...

If workers have concerns for local status, it seems plausible that firms can increase their profits by exploiting the competitive nature of their employees. This paper shows, contrary to expectations, that firms may not be able to do that; in fact, firm profits are reduced by the workers’ choices of relative concerns. In doing so, this paper also offers an explanation for why agents might exhib...

Evidence on Training and Career Paths: Human Capital, Information and Incentives In this paper, I analyse the relationship between job-related training and career progress of workers. Most theories of career paths and task assignment rely on human capital accumulation. Therefore, it seems natural to start assessing the empirical validity of such theories by analysing the effect of training on t...

A firm whose profits increase when outsiders believe that it pays high wages may induce its workers to over-consume goods that signal high compensation. One implication is that firms may lobby government to subsidize fringe benefits with high signaling value, such as company cars, to their employees. We show that under plausible conditions the provision of fringe benefits indeed can signal the ...

Executive Compensation, Firm Performance, and Chaebols in Korea: Evidence from New Panel Data This paper provides the first rigorous econometric estimates on the pay-performance relations for executives of Korean firms with and without Chaebol affiliation. To do so, we have assembled for the first time panel data (that provide information not only on executive compensation and firm performance ...

In many occupations, the consequences of an agent’s actions become known only over time. Should a principal then compensate an agent based on early but noisy information about performance, or later but more accurate information, or both? To answer this question, I study a two-period model in which a principal can pay a risk-averse agent based on both true output, which is realized with delay, a...

Sabotage in Tournaments: Evidence from a Natural Experiment Many tournaments are plagued by sabotage among competitors. Typically, sabotage is welfare-reducing, but from an individual’s perspective an attractive alternative to exerting positive effort. Yet, given its illegal and often immoral nature, sabotage is typically hidden, making it difficult to assess its extent and its victims. Therefo...

In this paper a tournament between teams (a collective tournament) is analyzed, where each contestant may spend productive e¤ort in order to increase his team’s performance or sabotage the members of the opponent team. It is shown that sabotaging the weaker members of a team always decreases their team’s performance more signi…cantly than sabotaging stronger members does. As a consequence, sabo...

In this paper, a promotion tournament is considered, where, at the beginning of the tournament, it is unknown how long the tournament lasts. Further, the promotion decision is based on the assessments of a supervisor with imperfect recall. In line with psychological research, the supervisor is assumed to either value early or recent impressions more strongly. It is shown that e¤ort may increase...

What Explains the Rise in CEO Pay in Germany? A Panel Data Analysis for 1977-2009 The compensation of executive board members in Germany has become a highly controversial topic since Vodafone’s hostile takeover of Mannesmann in 2000 and it is again in the spotlight since the outbreak of the financial crisis of 2009. Based on unique panel data evidence of the 500 largest firms in Germany in the ...