Incentive Compensation in a Corporate Hierarchy

JOURNAL OF ACCOUNTING AND ECONOMICS, 1995

Posted: 20 Dec 1998

See all articles by Michael Gibbs

Michael Gibbs

University of Chicago Booth School of Business; Institute for the Study of Labor (IZA)

Abstract

A theoretical and empirical analysis of within-job and promotion-based incentives for middle managers is presented, using personnel data from a firm. Within-job incentives are stronger than implied by previous studies. Evidence is provided that promotions sort employees by ability, and also generate incentives. Promotions are associated with large increases in lifetime earnings, as long as performance is sustained in the future. There is little evidence that the firm trades-off within-job and promotion-based incentives as predicted. Instead, it appears to use a simple incentive scheme, resulting in declining incentives for those passed over for promotion.

JEL Classification: J33, J31, J30, J41, J44

Suggested Citation

Gibbs, Michael, Incentive Compensation in a Corporate Hierarchy. JOURNAL OF ACCOUNTING AND ECONOMICS, 1995, Available at SSRN: https://ssrn.com/abstract=5756

Michael Gibbs (Contact Author)

University of Chicago Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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