Optimal job design in the presence of implicit contracts

We characterize the optimal job design in a multitasking environment when the firms rely on implicit incentive contracts (i.e., bonus payments). Two natural forms of job design are compared: (i) individual accountability, where each agent is assigned to a particular job and assumes full responsibility for its outcome; and (ii) team accountability, where a group of agents share responsibility for a job and are jointly accountable for its outcome. The key trade-off is that team accountability mitigates the multitasking problem but may weaken the implicit contracts. The optimal job design follows a cut-off rule: firms with high reputation concerns opt for team accountability, whereas firms with low reputation concerns opt for individual accountability. Team accountability is more likely the more acute the multitasking problem is. However, the cut-off rule need not hold if the firm combines implicit incentives with explicit pay-per-performance contracts.

Definição de um modelo de incentivo de profissionais de saúde em contexto de integração vertical e financiamento capitativo de cuidados de saúde

RESUMO - Contexto Os indivíduos, tal como as instituições, não são imunes a incentivos. No entanto, enquanto os modelos de incentivos das instituições têm sido alvo de diferentes evoluções, o mesmo não se verificou ao nível dos profissionais. Esta situação não se figura compatível com a complexidade de gestão de recursos humanos, devendo ser obviada para potenciar o alinhamento entre os interesses institucionais e os dos próprios profissionais. Objectivos Estudar a atribuição de incentivos a profissionais de saúde no contexto de organizações com integração vertical de cuidados. Metodologia A metodologia adoptada compreendeu três fases. Numa primeira procedeu-se à revisão sistemática de literatura relativa à: (1) construção de modelos de incentivo a profissionais em diferentes sistemas de saúde e tipo de prestadores; e (2) identificação de medidas de custo-efectividade comprovada. Tendo por base esta evidência, a par de documentação oficial ao nível do modelo de financiamento das ULS, procedeu-se, numa segunda fase, à construção de um modelo de incentivo base com recurso à ferramenta Microsoft Excel. Por último, numa terceira etapa, procedeu-se à adaptação do modelo base construído na etapa transacta tendo por base informação obtida mediante a realização de um estudo retrospectivo in loco na ULS do Baixo Alentejo (ULSBA). Em adição, procedeu-se à estimativa do impacto na perspectiva da ULS e dos profissionais para o cenário base e diversas análises de sensibilidade. Resultados No que respeita à estrutura, o modelo base de incentivos a profissionais apresenta 44 indicadores, distribuídos por cinco dimensões de análise, sendo que 28 indicadores (63,6%) são de processo e 14 (31,8%) de resultado. Relativamente às dimensões em análise, verifica-se uma predominância de indicadores ao nível da dimensão eficiência e qualidade assistencial, totalizando 35 (i.e. 79,5% dos 44 indicadores). No que respeita ao destinatário, 14 indicadores (31,8%) apresentam uma visão holística da ULS, 17 (38,6%) encontram-se adstritos unicamente aos cuidados primários e os remanescentes 13 (29,5%) aos cuidados hospitalares. Cerca de 85% dos actuais incentivos da ULSBA decorre da unidade de pagamento salarial secundada pelo pagamento de suplementos (12%). Não obstante, o estudo retrospectivo da ULSBA confirmou o cenário expectável de ausência de um modelo de incentivo homogéneos e transversal à ULS, transparecendo importantes assimetrias entre diferentes unidades prestadoras e/ou profissionais de saúde. De forma relevante importa apontar a insuficiência de incentivos capitacionais (ao contrário do que sucede com o modelo de incentivo da própria ULSBA) ou adstritos a índices de desempenho. Tendo em consideração o modelo de incentivo concebido e adaptado à realidade da ULSBA, a par do plano de implementação, estima-se que o modelo de incentivos gere: (1) poupanças na perspectiva da ULS (entre 2,5% a 3,5% do orçamento global da ULSBA); e (2) um incremento de remuneração ao nível dos profissionais (entre 5% a 15% do salario base). O supracitado – aparentemente contraditório - decorre da aposta em medidas de custo-efectividade contrastada e um alinhamento entre o modelo proposto e o vigente para o próprio financiamento da unidade, apostando numa clara estratégia de ganhos mútuos. As análises de sensibilidade realizadas permitem conferir a solidez e robustez do modelo a significativas variações em parâmetros chave.

Incentivos, desempenho e remunerações: o caso português

Dissertação de mestrado em Economia Industrial e da Empresa

Executive Order Number Forty-Eight, June 2006

Ordered the Institute for Tomorrow’s Workforce to propose a design for a pay-for-performance program and conduct a study of the design.

Balanced Scorecard ja tulospalkkaus : Case Vakuutusyhtiö Sampo Oy

Tutkielman päätavoite on tutkia, miten tulospalkkaus voidaan integroida Balanced Scorecard-perusteiseen tulosohjaukseen ja analysoida miten kyseiset asiat on huomioitu Vakuutusyhtiö Sammon mallissa. Tutkielman empiirinen osa on rakennettu pääosin haastatteluihin pohjautuen. Tutkimusmetodologia on toiminta-analyyttinen ja haastattelut suoritettiin teemahaastatteluina. Tutkimuksessa todetaan, että ei ole yhtä ainoaa oikeaa tapaa yhdistää tulospalkkaus Balanced Scorecardiin. Tapa, miten tulospalkkaus liitetään Balanced Scorecardiin riippuu yrityksestä, sen tavoitteista ja niistä johdetuista kriittisistä menestystekijöistä. Tulospalkkaus on perusteltua yhdistää Balanced Scorecardiin paitsi huomion kiinnittämiseksi yrityksen strategisiin tavoitteisiin myös sen suoritusta ohjaavan vaikutuksen vuoksi. Integroitaessa tulospalkkausta Balanced Scorecardiin todettiin myös casetarkastelussa kriittisiksi alueiksi kommunikointi, onnistunut tavoiteasetanta, mittarit, järjestelmät ja esimiestyöskentely.

Career concerns: a human capital perspective

We introduce human capital accumulation, in the form of learning by doing, in a life cycle model of career concerns and analyze how human capital acquisition a ects implicit incentives for performance. We show that standard results from the career concerns literature can be reversed in the presence of human capital accumulation. Namely, implicit incentives need not decrease over time and may decrease with the degree of uncertainty about an individual's talent. Furthermore, increasing the pre-cision of output measurement can weaken rather than strengthen implicit incentives. Overall, our results contribute to shed new light on the ability of markets to discipline moral hazard in the absence of explicit contracts linking pay to performance.

Percepção do médico sobre pagamento por desempenho no gerenciamento de doenças cardiovasculares: o caso de uma operadora de plano de saúde

Desde os anos 50, os fatores de risco para as doenças cardiovasculares passaram a ser valorizados. O gerenciamento de doenças cardiovasculares (PGC) busca a construção da autonomia e melhoria da qualidade de vida dos pacientes. Em alguns países, para alcançar esses objetivos, tem sido apontada a utilização de programas de pagamento por desempenho (PPP) aos médicos como um dos elementos de melhoria nos processos e nos resultados dos pacientes e na condição de remuneração. O objetivo deste estudo é analisar o ponto de vista dos médicos sobre a implantação dos pagamentos por desempenho vinculados ao PGC em uma operadora de plano de saúde. Trata-se de investigação de caráter qualitativo, do tipo estudo de caso, apresentando entrevistas semiestruturadas com médicos participantes ou não do PGC, em setembro de 2009, tendo como referência as ações implantadas em 2008. Foram entrevistados 23 médicos (14 homens e 09 mulheres). Como resultado foi observado que o incentivo financeiro é reconhecido pelos médicos como importante, mas não determinante da inclusão de pacientes no PGC. O principal motivo apresentado foi a organização do cuidado, no qual o paciente é mais bem acompanhado e controlado, e o trabalho médico, avaliado segundo parâmetros preestabelecidos. O PGC e o PPP têm potencial de transformação do cuidado em saúde. O trabalho multidisciplinar e a maior produtividade nos atendimentos no consultório foram os principais efeitos positivos identificados. Outros estudos são necessários para acompanhar a evolução e os efeitos do pagamento por desempenho no trabalho médico.

Compensation, Incentives and Risk: Economic Theory and Russian Practise

Mr. Pechersky set out to examine a specific feature of the employer-employee relationship in Russian business organisations. He wanted to study to what extent the so-called "moral hazard" is being solved (if it is being solved at all), whether there is a relationship between pay and performance, and whether there is a correlation between economic theory and Russian reality. Finally, he set out to construct a model of the Russian economy that better reflects the way it actually functions than do certain other well-known models (for example models of incentive compensation, the Shapiro-Stiglitz model etc.). His report was presented to the RSS in the form of a series of manuscripts in English and Russian, and on disc, with many tables and graphs. He begins by pointing out the different examples of randomness that exist in the relationship between employee and employer. Firstly, results are frequently affected by circumstances outside the employee's control that have nothing to do with how intelligently, honestly, and diligently the employee has worked. When rewards are based on results, uncontrollable randomness in the employee's output induces randomness in their incomes. A second source of randomness involves the outside events that are beyond the control of the employee that may affect his or her ability to perform as contracted. A third source of randomness arises when the performance itself (rather than the result) is measured, and the performance evaluation procedures include random or subjective elements. Mr. Pechersky's study shows that in Russia the third source of randomness plays an important role. Moreover, he points out that employer-employee relationships in Russia are sometimes opposite to those in the West. Drawing on game theory, he characterises the Western system as follows. The two players are the principal and the agent, who are usually representative individuals. The principal hires an agent to perform a task, and the agent acquires an information advantage concerning his actions or the outside world at some point in the game, i.e. it is assumed that the employee is better informed. In Russia, on the other hand, incentive contracts are typically negotiated in situations in which the employer has the information advantage concerning outcome. Mr. Pechersky schematises it thus. Compensation (the wage) is W and consists of a base amount, plus a portion that varies with the outcome, x. So W = a + bx, where b is used to measure the intensity of the incentives provided to the employee. This means that one contract will be said to provide stronger incentives than another if it specifies a higher value for b. This is the incentive contract as it operates in the West. The key feature distinguishing the Russian example is that x is observed by the employer but is not observed by the employee. So the employer promises to pay in accordance with an incentive scheme, but since the outcome is not observable by the employee the contract cannot be enforced, and the question arises: is there any incentive for the employer to fulfil his or her promises? Mr. Pechersky considers two simple models of employer-employee relationships displaying the above type of information symmetry. In a static framework the obtained result is somewhat surprising: at the Nash equilibrium the employer pays nothing, even though his objective function contains a quadratic term reflecting negative consequences for the employer if the actual level of compensation deviates from the expectations of the employee. This can lead, for example, to labour turnover, or the expenses resulting from a bad reputation. In a dynamic framework, the conclusion can be formulated as follows: the higher the discount factor, the higher the incentive for the employer to be honest in his/her relationships with the employee. If the discount factor is taken to be a parameter reflecting the degree of (un)certainty (the higher the degree of uncertainty is, the lower is the discount factor), we can conclude that the answer to the formulated question depends on the stability of the political, social and economic situation in a country. Mr. Pechersky believes that the strength of a market system with private property lies not just in its providing the information needed to compute an efficient allocation of resources in an efficient manner. At least equally important is the manner in which it accepts individually self-interested behaviour, but then channels this behaviour in desired directions. People do not have to be cajoled, artificially induced, or forced to do their parts in a well-functioning market system. Instead, they are simply left to pursue their own objectives as they see fit. Under the right circumstances, people are led by Adam Smith's "invisible hand" of impersonal market forces to take the actions needed to achieve an efficient, co-ordinated pattern of choices. The problem is that, as Mr. Pechersky sees it, there is no reason to believe that the circumstances in Russia are right, and the invisible hand is doing its work properly. Political instability, social tension and other circumstances prevent it from doing so. Mr. Pechersky believes that the discount factor plays a crucial role in employer-employee relationships. Such relationships can be considered satisfactory from a normative point of view, only in those cases where the discount factor is sufficiently large. Unfortunately, in modern Russia the evidence points to the typical discount factor being relatively small. This fact can be explained as a manifestation of aversion to risk of economic agents. Mr. Pechersky hopes that when political stabilisation occurs, the discount factors of economic agents will increase, and the agent's behaviour will be explicable in terms of more traditional models.

The influence of financial participation and participation in decision-making on employee job attitudes

This study investigates the direct and indirect effects of financial participation (FP) and participation in decision-making (PDM) on employee job attitudes. The central premise is that both financial participation and participation in decision-making have effects on job attitudes, such as integration, involvement and commitment, perceived pay equity, performance-reward contingencies, satisfaction and motivation. After reviewing the theoretical and empirical literature and testing two theoretical frameworks, developed by Long (1978a) and Florkowski ( 1989), a new model was constructed to consider a combined effects of both FP and PDM, herein referred to as employee participation (EP). The underpinning of the model is based on the assumption that both ( a) the combination of financial participation and participation in decision-making ('employee participation'), and (b) participation in decision-making produce favourable effects on employee job attitudes. The test of the new model showed that employee participation does not produce more favourable effects on employee job attitudes, than does participation in decision-making on its own. The data were gathered from a questionnaire study administered in a large British retail organization that operates two types of ownership schemes - profit-sharing and SAYE schemes.

How can HRM promote organizational innovation

Our work investigating managerial practices in UK manufacturing organisations has shown that people management practices play an important role in promoting innovation. Having developed an instrument to analyse innovation (defined by West and Farr in 1990 as “the intentional introduction and application in a job, work team or organisation of ideas, processes, products or procedures which are new, and designed to benefit the job, the work team or the organisation”), we were able to give each of the 30 organisations in our sample a score of between one and seven to capture innovation in a range of domains. This instrument took into account the magnitude of the innovation in terms of the number of people involved in its implementation, and how new and different it was. We found that much innovation involves relatively minor, ongoing improvements, rather than major change. To achieve sustained innovation, organisations must be able to draw upon the skills and knowledge of employees at all levels of the business. So which HRM practices are most likely to promote a positive learning environment? We developed a scale to take into account three facets of HRM that shape the learning environment and predict the extent to which individuals can gain the skills to promote innovation. First, organisations should have a vision statement capturing their approach to learning and development and communicating to staff the importance that they attach to these processes. Second, they must implement and endorse mentoring schemes. Last, they should consider offering staff the opportunity to have regular career development meetings. Where a positive learning climate exists, organisations tend to be more innovative. The results also show that organisations that make explicit the link between appraisal and remuneration perform relatively less well in innovation terms than those whose appraisal systems have no relationship with pay. Many have argued (for example, Lawler,1995) that pay-for-performance schemes provide a “line of sight” between performance and reward, thereby enabling individuals to make appropriate decisions about where best to direct the effort. Our findings do not imply that performance-related pay is ill advised in all circumstances, but we suggest that organisations should exercise caution before introducing such schemes. People are central to innovation, and this study suggests that high innovation can be achieved when people are empowered to make changes at local levels. HRM has an important, perhaps crucial, role to play in creating an environment that enables people to develop the skills and confidence necessary to affect change. Key points: Organisational innovation is an important determinant of competitive performance and advancement, enabling organisations to anticipate and respond to the challenges of globalisation. HRM has an important, perhaps crucial, role to play in promoting organisational innovation – to the extent that it creates a positive environment for learning and removes barriers that may inhibit creative performance (for example, linking appraisal to remuneration).

Essays on the Role of Government Incentives in the Private Provision of Social Goods

The economic rationale for public intervention into private markets through price mechanisms is twofold: to correct market failures and to redistribute resources. Financial incentives are one such price mechanism. In this dissertation, I specifically address the role of financial incentives in providing social goods in two separate contexts: a redistributive policy that enables low income working families to access affordable childcare in the US and an experimental pay-for-performance intervention to improve population health outcomes in rural India. In the first two papers, I investigate the effects of government incentives for providing grandchild care on grandmothers’ short- and long-term outcomes. In the third paper, coauthored with Manoj Mohanan, Grant Miller, Katherine Donato, and Marcos Vera-Hernandez, we use an experimental framework to consider the the effects of financial incentives in improving maternal and child health outcomes in the Indian state of Karnataka.

Grandmothers provide a significant amount of childcare in the US, but little is known about how this informal, and often uncompensated, time transfer impacts their economic and health outcomes. The first two chapters of this dissertation address the impact of federally funded, state-level means-tested programs that compensate grandparent-provided childcare on the retirement security of older women, an economically vulnerable group of considerable policy interest. I use the variation in the availability and generosity of childcare subsidies to model the effect of government payments for grandchild care on grandmothers’ time use, income, earnings, interfamily transfers, and health outcomes. After establishing that more generous government payments induce grandmothers to provide more hours of childcare, I find that grandmothers adjust their behavior by reducing their formal labor supply and earnings. Grandmothers make up for lost earnings by claiming Social Security earlier, increasing their reliance on Supplemental Security Income (SSI) and reducing financial transfers to their children. While the policy does not appear to negatively impact grandmothers’ immediate economic well-being, there are significant costs to the state, in terms of both up-front costs for care payments and long-term costs as a result of grandmothers’ increased reliance on social insurance.

The final paper, The Role of Non-Cognitive Traits in Response to Financial Incentives: Evidence from a Randomized Control Trial of Obstetrics Care Providers in India, is coauthored with Manoj Mohanan, Grant Miller, Katherine Donato and Marcos Vera-Hernandez. We report the results from “Improving Maternal and Child Health in India: Evaluating Demand and Supply Side Strategies” (IMACHINE), a randomized controlled experiment designed to test the effectiveness of supply-side incentives for private obstetrics care providers in rural Karnataka, India. In particular, the experimental design compares two different types of incentives: (1) those based on the quality of inputs providers offer their patients (inputs contracts) and (2) those based on the reduction of incidence of four adverse maternal and neonatal health outcomes (outcomes contracts). Along with studying the relative effectiveness of the different financial incentives, we also investigate the role of provider characteristics, preferences, expectations and non-cognitive traits in mitigating the effects of incentive contracts.

We find that both contract types input incentive contracts reduce rates of post-partum hemorrhage, the leading cause of maternal mortality in India by about 20%. We also find some evidence of multitasking as output incentive contract providers reduce the level of postnatal newborn care received by their patients. We find that patient health improvements in response to both contract types are concentrated among higher trained providers. We find improvements in patient care to be concentrated among the lower trained providers. Contrary to our expectations, we also find improvements in patient health to be concentrated among the most risk averse providers, while more patient providers respond relatively little to the incentives, and these difference are most evident in the outputs contract arm. The results are opposite for patient care outcomes; risk averse providers have significantly lower rates of patient care and more patient providers provide higher quality care in response to the outputs contract. We find evidence that overconfidence among providers about their expectations about possible improvements reduces the effectiveness of both types of incentive contracts for improving both patient outcomes and patient care. Finally, we find no heterogeneous response based on non-cognitive traits.

Palkitsemisen vaikutus kaupan alan myymälähenkilökunnan työmotivaatioon ja työsuoritukseen

Palkitseminen on yksi keskeisimmistä työmotivaatioon ja työsuoritukseen vaikuttavista elementeistä. Tässä kvalitatiivisella tutkimusmenetelmällä laaditussa Pro gradu-tutkielmassa tutkitaan palkitsemisen vaikutusta kaupan alan myymälähenkilökunnan työmotivaatioon ja työsuoritukseen. Tutkimuksen tavoitteena on selvittää millä tutki-muksen kohdeorganisaation nykyisillä kokonaispalkitsemisen keinoista on merkittävin vaikutus myymälähenkilökunnan työmotivaatioon ja työsuoritukseen. Lisäksi tutkimus havinnollistaa, millaisilla muilla palkitsemisen keinoilla pystytään vaikuttamaan myymälähenkilökunnan työmotivaatioon siten, että sen vaikutus heijastuu positiivisena impulssina myös työntekijän työsuoritukseen. Tutkimuksen teoreettinen viitekehys on rakennettu kokonaispalkitsemisen ja työmotivaation ympärille ja näkökulmia peilataan sekä yksilön kokeman oikeudenmukaisuuden, että yrityksen strategisen palkitsemisen näkökulmista. Tutkimuksen perusteella voidaan nähdä, että tulokseen sidottu palkitseminen on yksi keskeisimmistä työsuoritukseen vaikuttavista palkitsemisen elementeistä myyntityössä. Työsuoritukseen ja työmotivaatioon pystytään vaikuttamaan myös itsenäisellä työskentelytavalla, uramahdollisuuksilla ja ammatillisen kehittymisen mahdollisuuksilla. Kohdeorganisaation kokonaispalkitsemisen mallia tulisikin muokata vastaamaan entistä paremmin näitä indikaattoreita, jotta kokonaispalkitsemisen malli toimisi strategisen palkitsemisen näkökulmasta mahdollisimman optimaalisella tavalla.

Diseño y aplicación de un modelo de remuneración variable para una empresa del sector de las telecomunicaciones

Actualmente encontramos una fuerte presión en las organizaciones por adaptarse a un mundo competitivo con un descenso en las utilidades y una incertidumbre constante en su flujo de caja. Estas circunstancias obligan a las organizaciones al mejoramiento continuo buscando nuevas formas de gestionar sus procesos y sus recursos. Para las organizaciones de prestación de servicios en el sector de telecomunicaciones una de las ventajas competitivas más importantes de obtener es la productividad debido a que sus ganancias dependen directamente del número de actividades que puedan ejecutar cada empleado. El reto es hacer más con menos y con mejor calidad. Para lograrlo, la necesidad de gestionar efectivamente los recursos humanos aparece, y aquí es donde los sistemas de compensación toman un rol importante. El objetivo en este trabajo es diseñar y aplicar un modelo de remuneración variable para una empresa de prestación de servicios profesionales en el sector de las telecomunicaciones y con esto aportar al estudio de la gestión del desempeño y del talento humano en Colombia. Su realización permitió la documentación del diseño y aplicación del modelo de remuneración variable en un proyecto del sector de telecomunicaciones en Colombia. Su diseño utilizó las tendencias de programas remunerativos y teorías de gestión de desempeño para lograr un modelo integral que permita el crecimiento sostenido en el largo plazo y la motivación al recurso más importante de la organización que es el talento humano. Su aplicación permitió también la documentación de problemas y aciertos en la implementación de estos modelos.

Corporate performance and the pay gap

Increasing disparity between executive compensation and that of the average worker (the pay gap) has generated a fierce debate about its causes and effects. This paper studies the determinants and performance effects of the pay gap through the prism of Tournament Incentives and the Equity Fairness Theory. Results show that the size of the pay gap is caused primarily by the size of the firm and by the standards of its industry and also by the unionization rate and whether the Chairman is also the CEO. The paper Concludes by showins that the pay gap has a positive effect on firm performance in the United States Keywords: