The Nexus between Contract Duration and the Use of Formal and Informal Incentive Pay

Autor(en)
Dominique Demougin, Oliver Fabel
Abstrakt

We investigate a firm's choice of formal and informal effort incentives in a repeated game setting with undistorted signaling and liquidity‐constrained agents. The model allows for a simple geometric representation of credibility and incentive‐feasibility effects on optimal contract design. If credibility constitutes a binding constraint, explicit, i.e. enforceable, performance pay and discretionary salary promises are unambiguous substitutes and higher employee performance is associated with lower‐powered bonus pay. Using personnel data from an insurance company, we show that the model's predictions regarding the mediating role of expected contract duration on these relationships are consistent with remuneration practices.

Organisation(en)
Institut für Betriebswirtschaftslehre, Institut für Business Decisions and Analytics
Journal
Labour
Band
33
Seiten
351-370
Anzahl der Seiten
20
ISSN
1121-7081
DOI
https://doi.org/10.1111/labr.12151
Publikationsdatum
09-2019
Publikationsstatus
Veröffentlicht
Peer-reviewed
Ja
ÖFOS 2012
502026 Personalmanagement
ASJC Scopus Sachgebiete
Demography, Geography, Planning and Development
Link zum Portal
https://ucris.univie.ac.at/portal/de/publications/the-nexus-between-contract-duration-and-the-use-of-formal-and-informal-incentive-pay(ae116bde-20fa-4c1d-a479-97637ac156a1).html