Using detailed personnel data from a firm, we analyze the real effects of the kind of compensation system that is used in many large firms--the Hay system. Such compensation systems are highly centralized and bureaucratic, with little ability for managers to adjust incentives for different job...

Drawing on a single large U.S. corporation's personnel records for the years 1989-93, the authors analyze an example of the kind of formal salary system used by most large firms. They find that this firm's practices were consistent with most of the important conclusions of prior empirical...