Firm‐Wide Incentives and Mutual Monitoring at Continental Airlines

Knez, Marc; Simester, Duncan

doi:10.1086/322820

Cited by 328 publications

(220 citation statements)

References 14 publications

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“…As such, both overcoming existing coordination failure and avoiding a slide into coordination failure are critical issues for the survival and success of many organizations. For example, Knez and Simester (2002) study the successful turnaround of Continental Airlines in the mid 1990s. They establish that a central feature of the problem facing Continental executives was the role of interdependencies among autonomous groups of employees in determining the airline's performance.…”

Section: Introductionmentioning

confidence: 99%

Observability and overcoming coordination failure in organizations: An experimental study

Brandts

Cooper

2006

Exp Econ

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Many organizations suffer poor performance because its members fail to coordinate on efficient patterns of behavior. In previous research, we have shown that financial incentives can be used to find a way out of such performance traps. Here we examine the sensitivity of this result to the ability of people to observe others' choices. Our experiments are set in a corporate environment where subjects' payoffs depend on coordinating at high effort levels; the underlying game being played repeatedly by the employees of an experimental firm is a weak-link game. Treatments vary along two dimensions. First, subjects either start with low financial incentives for coordination, which typically leads to coordination failure, and then are switched to higher incentives or start with high incentives, which typically yield effective coordination, and are switched to low incentives. Second, as the key treatment variable, subjects either observe the effort levels chosen by all employees in their experimental firm (full feedback) or observe only the minimum effort (limited feedback). We find three primary results: (1) The use of full feedback improves the ability of organizations to overcome coordination failure, (2) The use of full feedback has no effect on the ability of successful organizations to avoid slipping into coordination failure, and (3) History-dependence is strengthened by the use of full feedback.

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Section: Introductionmentioning

confidence: 99%

Observability and overcoming coordination failure in organizations: An experimental study

Brandts

Cooper

2006

Exp Econ

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“…This mutual monitoring and punishment helps enforce effort norms (Kandel and Lazear 1992) and its existence has been confirmed in case studies, experiments and survey data (Knez and Simester 2001;Freeman et al 2008). Moreover, workers with positive reciprocity are thought to reward those who contribute or who help them directly.…”

Section: Setting the Contextmentioning

confidence: 73%

Profit Sharing and Reciprocity: Theory and Survey Evidence

Cornelißen

Heywood²,

Jirjahn³

2010

SSRN Journal

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SOEPpapers on Multidisciplinary Panel Data Research at DIW BerlinThis series presents research findings based either directly on data from the German SocioEconomic Panel Study (SOEP) or using SOEP data as part of an internationally comparable data set (e.g. CNEF, ECHP, LIS, LWS, CHER/PACO). SOEP is a truly multidisciplinary household panel study covering a wide range of social and behavioral sciences: economics, sociology, psychology, survey methodology, econometrics and applied statistics, educational science, political science, public health, behavioral genetics, demography, geography, and sport science.The decision to publish a submission in SOEPpapers is made by a board of editors chosen by the DIW Berlin to represent the wide range of disciplines covered by SOEP. There is no external referee process and papers are either accepted or rejected without revision. Papers appear in this series as works in progress and may also appear elsewhere. They often represent preliminary studies and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be requested from the author directly. Department of Economics, University of Wisconsin-Milwaukee Uwe Jirjahn Department of Economics, University of TrierAbstract: The 1/n problem potentially limits the effectiveness of profit sharing in motivating workers. While the economic literature suggests that reciprocity can mitigate this problem, it remains silent on the optimal degree of reciprocity. We present a representative model demonstrating that reciprocity may increase productive effort but may also increase unproductive effort such as socializing on the job. The model implies that reciprocity increases profit up to a point but decreases profit beyond that point. Using detailed survey measures of worker reciprocity, we show that the probability of receiving profit sharing takes an inverse U-shape as reciprocity increases. This supports the general implication of the model and is shown to exist for both positive and negative reciprocity and to remain when a series of ability proxies and detailed industry indicators are included.

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“…4 An example of the successful use of such all-or-none firm-wide incentives is Continental Airlines' introduction in 1995 of a $65 bonus per employee for every month in which the airline ranked in the top-five in on-time departures (see Knez and Simester 2001). Airport departures and minimum-effort coordination games share many properties (Weber 2000;Gittell 2001).…”

Section: Our Experimentsmentioning

confidence: 99%

“…To understand how best to induce groups away from the least efficient equilibrium, an important issue is whether simple incentives should target the optimal action or simply an improvement. Incentive use in firms often targets an improvement, rather than only the best possible outcome (Knez and Simester 2001). However, there is little evidence on the relative effectiveness of incentives that only apply to the best outcome, versus incentives that apply to several better outcomes.…”

Section: Our Experimentsmentioning

confidence: 99%

Solving coordination failure with “all-or-none” group-level incentives

2007

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Coordinating activity among members is an important problem faced by organizations. When firms, or units within firms, are stuck in bad equilibria, managers may turn to the temporary use of simple incentives-flat punishments or rewards-in an attempt to transition the firm or unit to a more efficient equilibrium. We investigate the use of incentives in the context of the "minimum-effort," or "weak-link," coordination game. We allow groups to reach the inefficient equilibrium and then implement temporary, flat, "all-or-none" incentives to encourage coordination on more efficient equilibria. We vary whether incentives are positive (rewards) or negative (penalties), whether they have substantial or nominal monetary value, and whether they are targeted to a specific outcome (the efficient equilibrium) or untargeted (apply to more than one outcome). Overall, incentives of all kinds are effective at improving coordination while they are in place, but there is little long-term persistent benefit of incentives-once incentives are removed, groups tend to return to the inefficient outcome. We find some differences between different kinds of incentives. Finally, we contrast our results to other recent work demonstrating greater long-term effectiveness of temporary incentives.

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Firm‐Wide Incentives and Mutual Monitoring at Continental Airlines

Cited by 328 publications

References 14 publications

Observability and overcoming coordination failure in organizations: An experimental study

Observability and overcoming coordination failure in organizations: An experimental study

Profit Sharing and Reciprocity: Theory and Survey Evidence

Solving coordination failure with “all-or-none” group-level incentives

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