Luck, Effort, and Reward in an Organizational Hierarchy

Abstract

We use administrative personnel records of a large British financial sector employer to investigate how workers' behaviour responds to remuneration differences and 'luck' in the promotion system. The main methodological innovation is the use of the early part of a panel dataset to construct an individual specific measure of the importance of luck in the promotion process. The measure of luck is used to analyse workers' behaviour in the later part of the panel.The substantive results should probably be treated with caution until confirmed by evidence from other firms and contexts. In a nutshell, we confirm that workers respond to larger remuneration spreads by working harder. They are not prepared to work so hard, though, if the promotion system operates in an unpredictable fashion.Our evidence also bears on behavioural differences between men and women, and between workers at different levels of the hierarchy. We are unable to detect any difference between men's and women's reactions to the incentives provided by pay and promotion. The large and robust gender differences displayed in the raw data are therefore not due to incentives. We need to look elsewhere for an explanation. Similarly large and robust differences in absence behaviour between different levels of the hierarchy are actually reversed when the effect of incentives is factored out.

13. Theory and Evidence in Internal Labor Markets

“…One set of papers focuses on the prediction that worker effort should be positively related to the spread. Various papers, including Ehrenberg and Bognanno (1990a,b) who study professional golf tournaments, Becker and Huselid (1992) who study auto racing, and Audas, Barmby, and Treble (2004) who study promotion at a large British financial sector employer, find evidence consistent with this prediction. Although of interest, I find this particular set of findings weak in terms of how strongly they support traditional tournament theory.…”

Tournaments and managerial incentives in China's listed firms: New evidence

“…al., 1993, Baker and et. al., 1994, Knoeber and Thurman, 1995, Drago and Garvey, 1998, Eriksson, 1999, Bognanno, 2001, Agrawal and et., al., 2004, and Audas, 2004, we begin with two previously-tested empirical predictions from the tournament model: (i) the prize of the tournament (the salary gap between the top executive and the other contestants) rises with the number of contestants in the tournament pool; and (ii) the prize of the tournament is greater in firms facing more volatile market conditions (and hence managers having less control over their performance). 1 We then examine the effect of ownership structure on the sensitivities of the tournament prize to the size of the contestant pool and market volatility.…”

Personal Income and Hierarchical Power

“…Although the firm sample is small, the evidence is unambiguous: there is a strong correlation between relative income and hierarchical power in these case-study firms. This figure plots average income against average hierarchical power for six case-study firms (Audas et al, 2004;Baker et al, 1993;Dohmen et al, 2004;Lima, 2000;Treble et al, 2001). Average income is normalized to equal one in the base hierarchical level.…”