There is a debate on whether executive pay reflects rent extraction due to "managerial power" or is the result of arms-length bargaining in a principal-agent framework. In this paper we offer a test of the managerial power hypothesis by empirically examining the CEO compensation of U.S. public...

Incentives often fail in inducing economic agents to engage in a desirable activity; implementability is restricted. What restricts implementability? When does re-organization help to overcome this restriction? This paper shows that any restriction of implementability is caused by an...

When designing incentives for a manager, the trade-off between insurance and a "good" allocation of effort across various tasks is often identified with a trade-off between the responsiveness (sensitivity, precision, signal-noise ratio) of the performance measure and its similarity (congruity,...

Many organizations rely on teamwork, and yet field evidence on the impacts of team-basedincentives remains scarce. Compared to individual incentives, team incentives can affectproductivity by changing both workers’ effort and team composition. We present evidencefrom a field experiment...

A large, mature and robust economic literature on pay for performance now exists, whichprovides a useful framework for thinking about pay for performance systems. I use thelessons of the literature to discuss how to design and implement pay for performance inpractice....

The Peter Principle states that, after a promotion, the observed output of promotedemployees tends to fall. Lazear (2004) models this principle as resulting from a regression tothe mean of the transitory component of ability...

This paper develops a framework for studying individuals ideas about what constitutes justcompensation for chief executive officers (CEOs) and reports estimates of just CEO pay andthe principles guiding ideas of justice. The sample consists of students pursuing a Master ofBusiness Administration...

In this paper, we analyze a principal's optimal feedback policy in tournaments. We close agap in the literature by assuming the principal to be unable to commit to a certain policy atthe beginning of the tournament...

We investigate the use of performance appraisal (PA) in German Firms. First, we derivehypotheses on individual and job based determinants of PA usage. Based on arepresentative German data set on individual employees, we test these hypotheses and alsoexplore the impact of PA on performance pay...

We present results from a field experiment testing the gift-exchange hypothesis inside a treeplantingfirm paying its workforce incentive contracts. Firm managers told a crew of treeplanters they would receive a pay raise for one day as a result of a surplus not attributable topast planting...