Incentive Pay Research Articles

Do Nonprofits Treat Their Employees Differently? Incentive Pay and Health Benefits

AbstractWe examine how nonprofit, public, and for‐profit establishments vary in the provision of health benefits and insurance and performance‐based incentives using the 2002 National Organization Survey of establishments in the United States. We found that in comparison to for‐profit firms, both nonprofit and public organizations are less likely to use performance‐based incentives, although they provide their employees with better health benefits and insurance. Sectoral differences in the provision of health benefits and insurance and use of performance‐based incentives persist after controlling for correlates of sector that predict these outcomes, including establishment size, independence of establishment, market competition, establishment age, and unionization. We also found trade‐offs between the provision of health benefits and insurance and use of performance‐based incentives. Our results are generally consistent with the prediction from agency theory and also consistent with a view that public and nonprofit organizations are more concerned with the well‐being of their employees.

Regulating Deferred Incentive Pay

Our paper examines the effect of recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses for compensation contracts in the financial sector. We study a multi-task setting in which a bank employee, the agent, privately chooses (deal or customer) acquisition effort and diligence, which stochastically reduces the occurrence of negative events over time (such as loan defaults or customer cancellations). The key ingredient of the compensation contract is the endogenous timing of a long-term bonus that trades off the cost and benefit of delay resulting from agent impatience and the informational gain, respectively. Our main finding is that government interference with this privately optimal choice may

Determinants of Executive Incentive Pay in Europe

In this paper we study possible determinants of the use of incentive pay for managers in European companies. Data from 5,000 firms in 15 countries are used to analyze the degree to which incentive pay is associated with national embeddedness, local labour market institutions, ownership, and internationalization of markets. We find that companies in countries with high scores on power distance and individualism tend to use incentive schemes for managers more frequently than companies with lower scores on these cultural dimensions. Centralized wage bargaining and unionization at the firm level tend to reduce the prevalence of such schemes. Incentive pay is less common in state-owned companies than in privately owned firms. The findings also reveal that the more global the market in which a firm operates, the greater the probability that it will implement incentive pay elements for its managers. Our results suggest that unions, national labour market institutions and social and cultural norms serve as buffers against the introduction of US-style compensation systems. _______________________________________________________________________________________ Denne artikkelen er lastet ned fra www.idunn.no. Reproduksjon eller annen videreformidling av artikkelen er ikke tillatt uten avtale med rettighetsforvalter. (PUBLISHER NOT AVAILABLE) , 1-14

The Design of Teacher Incentive Pay and Educational Outcomes: Evidence from the New York City Bonus Program

Teacher compensation schemes are often criticized for lacking a performance-based component. Proponents argue that teacher incentive pay can raise student achievement and stimulate system-wide innovation. We examine a group-based teacher incentive scheme implemented in New York City and investigate whether specific features of the program contributed to its ineffectiveness. Although overall the program had little effect on student achievement, we show that in schools where incentives to free ride were weakest, the program led to small increases in math achievement. Our results underscore the importance of carefully considering the design of teacher incentive pay programs.

Incentive Pay Programs Do Not Affect Teacher Motivation or Reported Practices

This study drew on teacher survey responses from randomized experiments exploring three different pay-for-performance programs to examine the extent to which these programs motivated teachers to improve student achievement and the impact of such programs on teachers' instruction, number of hours worked, job stress, and collegiality. Results showed that most teachers did not report their program as motivating. Moreover, the survey responses suggest that none of the three programs changed teachers' instruction, increased their number of hours worked or job stress, or damaged their collegiality. Future research needs to further examine the logic model of pay-for-performance programs and test alternative incentive models such as rewarding teachers based on their practices and job responsibilities rather than on student outcomes.

Deferred Incentive Pay Plan for Key Employees

Deferred Incentive Pay Plan for Key Employees

Incentive Pay and Performance: Insider Econometrics in a Multi-Unit Firm

Incentive Pay and Performance: Insider Econometrics in a Multi-Unit Firm

The Necessity of Multi-Discipline Risk Management: Transformation of Mindset and Incentive Pay

The Necessity of Multi-Discipline Risk Management: Transformation of Mindset and Incentive Pay

Incentive Pay and Performance: Insider Econometrics in a Multi-Unit Firm

We exploit organizational reforms in a foreign-owned bank in Central-East Europe to study the implementation of modern HRM policies in an emerging market context. We have branch-level data and use our knowledge of the process that led to the adoption of the reforms to implement two estimators that address endogeneity bias in a complementary fashion: an IV approach and Generalized Propensity Score estimation. Our results show that some of the reforms had a positive impact on productivity, but they also underscore the risks of quantity-based incentives where quality is important.

Monitoring, Contractual Incentive Pay, and the Structure of CEO Equity-Based Compensation

Monitoring, Contractual Incentive Pay, and the Structure of CEO Equity-Based Compensation

Incentive Strength and Teacher Productivity: Evidence from a Group-Based Teacher Incentive Pay System

We estimate the impact of incentive strength on achievement under a group-based teacher incentive pay program. The system provides variation in the share of students in a subject-grade that a teacher instructs, which proxies for incentive strength. We find that achievement on incentivized exams, but not non-incentivized exams, improves when incentives strengthen. For the incentivized exams, we find that effects fade out monotonically as a teacher’s portion of the group increases to between 20% and 30% and are larger for teachers with low-achieving students. Calculations based off these estimates show modest positive effects of the program overall.

Ironing Out the Wrinkles in Executive Compensation: Linking Incentive Pay to Average Stock Prices

Traditional stock option grant is the most common form of incentive pay in executive compensation. Applying a principal-agent analysis, we find this common practice suboptimal and firms are better off linking incentive pay to average stock prices. Among other benefits, averaging reduces volatility by about 42%, making the incentive pay more attractive to risk-averse executives. Holding the cost of the option grant to the firm constant, Asian stock options are more cost effective than traditional stock options and provide stronger incentives to increase stock price. More importantly, the improvement is achieved with little impact on the option grant’s risk incentives (after adjusting for option cost). Finally, averaging also improves the value and incentive effects of indexed stock options.

The Choice, Design and Strategic Implications of Executive Incentive Pay Schemes at the Time of an Initial Public Offering: A UK Perspective

This paper presents a critical analysis of the choice and design of executive pay incentive scheme arrangements implemented at the time of a company's initial public offering. Using a unique sample of 311 entrepreneurial companies over a five year period (1998–2002) it discovers that 172 companies implement executive share option schemes for the first time at their initial public offering. Taking this sub-sample, the paper evaluates and analyses the strategic choices made with regard to incentive pay schemes by the board of directors at this crucial time in a company's development. It finds that company's choices are split between schemes that have performance targets linked to reward and others that are contrary to the guidelines of the UK's Corporate Governance Code and best practice. Furthermore, it shows company characteristics that affect schemes and elaborates on the configuration of incentive schemes in respect of three critical elements: the performance target, comparator, and target level requirement for the shares to vest. In light of this, it proposes strategic reasons as to how these schemes might be set for initial public offerings and proposes that explanations for implementation are not underpinned by traditional agency theory but linked to a resource based view of the firm.

Corporate Governance: Incentive Pay with 'Rolling Option Repricing' Terms: The Role of Advisory Services (ISS, Glass Lewis); Ramtron Case Study

This brief essay looks at corporate governance issues that may arise when a company’s incentive pay package permits “rolling option repricing”.In the case of Ramtron International Corporation (RMTR), the company proposed for shareholder vote at its annual meeting a pay package (the “2012 Plan”) authorizing the issuance of options and other equity incentives amounting to 9.9% of the firm’s outstanding shares. Because Ramtron’s 2012 Plan provided that any outstanding award under prior plans that subsequently expired or was forfeited would be rolled back into the 2012 Plan authorization, a vote in favor of the Ramtron 2012 Plan actually became a vote to authorize the potential issuance of equity awards amounting to 26.6% of outstanding shares. Leading advisories Institutional Shareholder Services (ISS) and Glass, Lewis & Co. LLC recommended a vote in favor of Ramtron’s 2012 incentive plan. Is an incentive pay plan that potentially authorizes option grants to management amounting to 26.6% of currently outstanding shares an unreasonable size (too expensive)? How does enabling the rollover and reissue of expiring/forfeited options at lower prices with extended maturities differ in end result from enabling option repricing (a practice cited by advisories as a cause for disapproval of a plan)? What can be said about the criteria and operation of institutional shareholder advisory services? Corporate officers and directors, in proposing pay incentive plans, may want to give these issues thought, and, regardless of the recommendations of advisory services, investors may wish to more closely inspect proposed plans that include “rolling option repricing” terms.

Incentive Pay and Performance: Insider Econometrics in a Multi-Unit Bank

We analyze the impact of differentiated incentives on performance. While the literature has studied workers with relatively homogeneous tasks, we study teams with heterogeneous tasks and differentiated outputs that cannot be perfectly distinguished – a situation common in manufacturing or organizations that combine sales and services and for which it is difficult to design optimal compensation schemes. Using data from a foreign-owned bank in Central-East Europe, we find that the differentiated incentive pay raises productivity, especially in the larger branches of the bank. However, it has mixed benefits for the quality of sales in terms of product mix and profitability. Our analytical approach falls within “insider econometrics” and we extend this literature to account in two complementary ways for the endogeneity of firm-specific reforms – a major outstanding issue in this field. In particular, we exploit the characteristics of our data to implement both instrumental variable estimation and generalized propensity score estimation. Our results underscore (a) the risks of quantity-based incentives and differentiation of incentives among co-workers where quality is an important consideration and (b) the importance of accounting for endogeneity.

357 Multi-Factor Incentive Pay System in an Emergency Medicine Department

357 Multi-Factor Incentive Pay System in an Emergency Medicine Department

The Twelve Principles of Incentive Pay

The incentive mechanisms used in the financial services industry in particular, but also in many other contexts, reward income generated almost regardless of risk, with negligent and faulty risk measurement and unjustified risk taking as predictable results. A number of economists warned financial, industrial and service corporations against these practices, reminding them that, in designing incentive mechanisms, it is necessary to take account of the risks taken or incurred to avoid what economists and insurers call “moral hazard.” I review incentive pay based on first principles of the economics of organization. Clearly, in many cases, those principles were not followed, which led to a governance crisis, a financial crisis and an economic crisis.

S-Shaped Incentive Schemes and Pay Caps

S-shaped incentive schemes and pay caps are fairly common in practice. This paper demonstrates the optimality of s-shaped incentive schemes and pay caps by incorporating salespeople’s aversion to pay inequity into the standard agency model. Our analysis shows that salespeople’s desire for pay fairness increases the convexity of the optimal incentive scheme at small sales but increases the concavity at large sales. Consequently, the optimal compensation plan is s-shaped. With aversion to pay inequity, the optimal incentive scheme always contains an upper bound for total payment. For practical implementation, we propose a capped quota plan to approximate the optimal s-shaped scheme. Our numerical analysis indicates that the capped quota plan has an average non-optimality of less than 2% in parametric spaces studied. The numerical analysis also explores the sources of non-optimality and the relationship between market characteristics and the optimal size of pay caps.

Benchmarking for Executive Incentive Pay: The Importance of Performance Standards

Large amounts of executive compensation hinge on pre-set performance goals. This heightens the level of precision and confidence needed when companies and their boards address the key tasks of incentive design, testing, calibration and administration. Compensation committees often spend a great deal of time making sure they have proper market benchmarks for the level of executive pay. But business performance standards often have a large impact on executive compensation, and should receive significant attention from the committee. This article reviews the relative importance of performance standards and sets out a range of methods that can be used to set and manage them.

Self-Solicited Feedback: Effects of Hourly Pay and Individual Monetary Incentive Pay

The frequency of feedback solicitation under hourly pay and individual monetary incentive pay conditions was examined. A between-subjects design was used with 30 college students in the two groups. Participants attended three experimental sessions and entered the cash value of simulated bank checks presented on a computer screen. Performance was higher for individuals who were paid incentives; however, participants who were paid incentives did not self-solicit feedback more than those who were paid hourly. Rather, participants in both groups solicited feedback quite frequently. Additionally, performance was not related to feedback solicitation. These results suggest that the incentives did not make feedback more reinforcing even though the incentives were functional rewards and the feedback was correlated with the amount of pay earned: the better the feedback, the more pay participants earned. The results also support the position that it may be necessary to pair objective feedback with an evaluative component to enhance performance.