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on Human Capital and Human Resource Management |
| By: | Albuquerque, Ana; Albuquerque, Rui; Carter, Mary Ellen; Dong, Flora |
| Abstract: | This paper quantifies the cost of CEO incentive compensation by estimating an elasticity of pay to the variance of pay. This metric is based on the benchmark moral hazard model widely used to study CEO pay. Using US CEO compensation data and a variety of empirical approaches, we find that CEOs with riskier pay packages are paid more. However, the estimated elasticity of pay to the variance of pay is small. This small elasticity implies a low risk aversion coefficient for CEOs and a risk premium that is at most 12% of total pay. This risk premium is about evenly split between compensation for risk in cash bonus, stock grants, and option grants. Overall, our findings suggest that incentive pay is not too costly for firms from a risk-diversification perspective, which may explain the heavy reliance on incentive pay by US firms, and cast doubt on the ability of the benchmark moral hazard model to explain CEO pay in the US. |
| Keywords: | ARCH; CEO pay; Contract Theory; Incentive Lab; incentives; moral hazard; participation constraint; realized variance; risk aversion |
| JEL: | D81 G30 J33 M52 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15243&r= |
| By: | Leaver, Clare; Ozier, Owen; Serneels, Pieter; Zeitlin, Andrew |
| Abstract: | This paper reports on a two-tiered experiment designed to separately identify the selection and effort margins of pay-for-performance (P4P). At the recruitment stage, teacher labor markets were randomly assigned to a pay-for-percentile or fixed-wage contract. Once recruits were placed, an unexpected, incentive-compatible, school-level re-randomization was performed, so that some teachers who applied for a fixed-wage contract ended up being paid by P4P, and vice versa. By the second year of the study, the within-year effort effect of P4P was 0.16 standard deviations of pupil learning, with the total effect rising to 0.20 standard deviations after allowing for selection. |
| Keywords: | field experiment; incentives; pay-for-performance; selection; teachers |
| JEL: | C93 I21 J45 M52 O15 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15333&r= |
| By: | Custódio, Cláudia; Mendes, Diogo; Metzger, Daniel |
| Abstract: | This paper studies the impact of a course in "Finance" for top managers of medium and large enterprises in Mozambique through a randomized controlled trial (RCT). Survey data and accounting data provide consistent evidence that managers change firm financial policies in response to finance education. The largest treatment ef- fect is on short-term financial policies related to working capital. Reductions in accounts receivable and inventories generate an increase in cash flows used to finance long-term investments. Those policy changes also improve the performance of the treated firms. Overall, our results suggest that relatively small and low-cost interventions, such as a standard executive education program in finance, can help firms to mitigate financial constraints and potentially affect economic development. |
| Keywords: | CEOs; Financial Education; financial literacy; Financing constraints; RCT |
| JEL: | D4 G30 J24 L25 M41 O16 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15294&r= |
| By: | Adams-Prassl, Abigail; Balgova, Maria; Qian, Matthias |
| Abstract: | In this paper, we analyze firm demand for flexible jobs by exploiting the language used to describe work arrangements in job vacancies. We take a supervised machine learning approach to classify the work arrangements described in more than 46 million UK job vacancies. We highlight the existence of very different types of flexibility amongst low and high wage vacancies. Job flexibility at low wages is more likely to be offered alongside a wage-contract that exposes workers to earnings risk, while flexibility at higher wages and in more skilled occupations is more likely to be offered alongside a fixed salary that shields workers from earnings variation. We show that firm demand for flexible work arrangements is partly driven by a desire to reduce labor costs; we find that a large and unexpected change to the minimum wage led to a 7 percentage point increase in the proportion of flexible and non-salaried vacancies at low wages |
| Keywords: | job vacancies; Labour Demand; labour market flexibility; minimum wage |
| JEL: | C45 C81 J21 J23 J32 J33 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15263&r= |
| By: | Dicks, David; Fulghieri, Paolo |
| Abstract: | We study a multidivisional firm where headquarters are exposed to moral hazard by division managers under uncertainty (or "ambiguity") aversion. We show the aggregation and linearity results of Holmström and Milgrom (1987) hold in an environment with IID ambiguity, as in Chen and Epstein (2002). While uncertainty creates endogenous disagreement that aggravates moral hazard, by hedging uncertainty headquarters can design incentive contracts that reduce disagreement, lower incentive provision costs, and promote effort. Because hedging uncertainty can conflict with hedging risk, optimal contracts differ from standard principal-agent models. Optimal contracts involve exposure to other divisions even when division cash flows are uncorrelated and, with sufficient uncertainty, involve equity-based pay, even when division cash-flows are positively correlated. Our model helps explain the prevalence of equity-based incentive contracts and the rarity of relative performance contracts. |
| Keywords: | Ambiguity; incentive contracting |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15378&r= |
| By: | Andrea L. Eisfeldt; Antonio Falato; Mindy Z. Xiaolan |
| Abstract: | The widespread and growing use of equity-based compensation has transformed high-skilled labor from a pure labor input to a class of "human capitalists." We show that high-skilled labor earns substantial income in the form of equity claims to firms' future dividends and capital gains. Equity-based compensation has dramatically increased since the 1980s, representing forty percent of total compensation to high-skilled labor in recent years. Ignoring equity income causes incorrect measurement of the returns to high-skilled labor, with substantial effects on macroeconomic trends. In our sample, including equity-based compensation in high-skilled labor income reduces the total decline in labor's wage-only income share relative to total value added since the 1980s by over 30%. The inclusion of equity-based compensation also eliminates the majority of the decline in the high-skilled labor share. Only by including equity pay does our structural estimation support complementarity between high-skilled labor and physical capital greater than that of Cobb and Douglas (1928). We also provide additional regression evidence of such complementarity. |
| JEL: | E0 E25 G3 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28815&r= |
| By: | Gibbs, Michael (University of Chicago); Mengel, Friederike (University of Essex); Siemroth, Christoph (University of Mannheim) |
| Abstract: | Using personnel and analytics data from over 10,000 skilled professionals at a large Asian IT services company, we compare productivity before and during the work from home [WFH] period of the Covid-19 pandemic. Total hours worked increased by roughly 30%, including a rise of 18% in working after normal business hours. Average output did not significantly change. Therefore, productivity fell by about 20%. Time spent on coordination activities and meetings increased, but uninterrupted work hours shrank considerably. Employees also spent less time networking, and received less coaching and 1:1 meetings with supervisors. These findings suggest that communication and coordination costs increased substantially during WFH, and constituted an important source of the decline in productivity. Employees with children living at home increased hours worked more than those without children at home, and suffered a bigger decline in productivity than those without children. |
| Keywords: | collaboration, COVID-19, pandemic, productivity, remote working, telecommuting, working from home, work hours, work time |
| JEL: | D2 M5 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14336&r= |
| By: | Khashabi, Pooyan; Kretschmer, Tobias; Mohammadi, Ali; Raffiee, Joseph |
| Abstract: | Cognitive ability and intelligence have been highlighted as the primary personnel measures used for hiring decisions, and gurus and popular business outlets consistently recommend that managers hire people smarter than themselves. However, the sustainability of such hiring strategies with respect to employee retention has not been fully investigated, largely due to data constraints. In this research note, we examine the relationship between cognitive ability and employee mobility, taking advantage of unique microdata from Sweden. Our empirical results show that higher cognitive ability is negatively associated with turnover, implying that cognitively-gifted employees settle with better employment options internally, compared to the external labor market. Nevertheless, when the employee has a significantly higher cognitive ability than their manager , employees are more likely to the firm. The results shed light on the relationship between cognitive ability and mobility, and highlight the role of managers for the success of hiring strategies based on cognitive ability. |
| Keywords: | cognitive ability; cognitive distance; employee mobility; Managers; retention |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15265&r= |