Luck, Effort and Reward in an Organisational 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.