The rise of individual performance pay

Arbeitspapier

Why does individual performance pay seem to prevail in human capital intensive industries? We present a model that may explain this. In a repeated game model of relational contracting, we analyze the conditions for implementing peer dependent incentive regimes when agents possess indispensable human capital. We show that the larger the share of values that the agents can hold-up, the lower is the implementable degree of peer dependent incentives. In a setting with team effects — complementary tasks and peer pressure, respectively — we show that while team-based incentives are optimal if agents are dispensable, it may be costly, and in fact suboptimal, to provide team incentives once the agents become indispensable.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2145

Classification and Topics

• Classification: Wirtschaft ; Organizational Behavior; Transaction Costs; Property Rights ; Compensation Packages; Payment Methods ; Transactional Relationships; Contracts and Reputation; Networks
• Subject: relational contracts ; multiagent moral hazard ; indispensable human capital ; Vergütungssystem ; Humankapital ; Leistungsanreiz ; Arbeitsvertrag ; Gruppenarbeit ; Spieltheorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kvaloy, Ola ; Olsen, Trond
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/26189
• Last update: 10.03.2025, 11:41 AM CET