Incentive pay and performance: Insider econometrics in a multi-unit firm

• Main Authors: Bogaard, H. (Author), Svejnar, J. (Author)
• Format: Article
• Language: English
• Published: Elsevier B.V. 2018
• Subjects: Banking; Central and Eastern Europe; Endogeneity of HRM policies; Foreign ownership; Incentives; Insider econometrics
• Online Access: View Fulltext in Publisher
• ISBN: 09275371 (ISSN)
• DOI: 10.1016/j.labeco.2018.07.001

Exploiting organizational reforms in a foreign-owned bank in Central-East Europe, we carry out an insider econometrics study of the implementation of modern human resource management reforms giving some employees high-powered incentives. We use branch-level panel data and particular features of the reform process to implement two estimators that address endogeneity bias (an outstanding issue in this literature) in a complementary fashion: an IV approach and Generalized Propensity Score estimation. In line with theory we show that some reforms had a positive impact on productivity. We also underscore the risks of introducing quantity-based incentives where quality is important. © 2018 Elsevier B.V.