Please use this form to submit your study for inclusion into our database. It will be checked by a member of the Innovation Growth Lab team, who may be in contact to ask for more information. Your email address * Your name * Title * The name of the study Short summary In the context of a fruit producer in the UK, the introduction of managerial incentives provides evidence of positive effects on worker productivity. In this context, when managers' pay is linked to the firm's performance, their interests become more aligned with those of the firm, which ultimately translates into stronger alignment of incentives of the workers they manage since the managers can target their efforts to specific workers. This also sheds some light on how managerial incentives determine earnings inequality among workers. A brief description of the project's goals and its current state Abstract <p>We present evidence from a firm level experiment in which we engineered an exogenous change in managerial compensation from fixed wages to performance pay based on the average productivity of lower-tier workers. Theory suggests that managerial incentives affect both the mean and dispersion of workers' productivity through two channels. First, managers respond to incentives by targeting their efforts towards more able workers, implying that both the mean and the dispersion increase. Second, managers select out the least able workers, implying that the mean increases but the dispersion may decrease. In our field experiment we find that the introduction of managerial performance pay raises both the mean and dispersion of worker productivity. Analysis of individual level productivity data shows that managers target their effort towards high ability workers, and the least able workers are less likely to be selected into employment. These results highlight the interplay between the provision of managerial incentives and earnings inequality among lower-tier workers.</p> The full abstract of the study, if available Links http://qje.oxfordjournals.org/content/122/2/729.full.pdf+html Links to any published papers and related discussions Authors * Affiliations Academic and other institutes that the authors of the study are members of Delivery partner Organisations involved in delivering the trial, if appropriate Year Year Year199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020202120222023202420252026 Month MonthJanFebMarAprMayJunJulAugSepOctNovDec Day Day12345678910111213141516171819202122232425262728293031 Journal Journal publishing the study, if available Publication stage * Working Paper Published Ongoing Research Forthcoming Discussion Paper Research theme * Entrepreneurship Innovation Business Growth Country Country or countries where this study took place. Topics What sort of topics does the study cover? Sample attributes Hypotheses / research question How does managerial performance pay affect firms' productivity and the performance of individual workers in lower tiers of the firms' hierarchy. Theory indicates that when workers are of heterogeneous ability and manager's and worker's effort are complements, the introduction of managerial performance pay makes managers target their effort towards the most able workers. Additionally, the introduction of managerial performance pay makes managers select the most able workers into employment. Sample Trial population and sample selection The firm is a leading UK producer of soft fruit. Its managerial staff belong to two classes: a single general manager (COO) and ten field managers. The bottom tier of the firm hierarchy consists of workers. Number of treatment groups Size of treatment groups 10 managers and 1 COO (51 days worth of production data) Size of control group Unit of analysis Clustered? Yes No Cluster details Trial attributes Treatment description Employees did not know they were taking part in an experiment. Exogenous changes were implemented in the compensation schemes of the company COO and managers. The COO and managers were told that their bonus payments will be awarded based on productivity data. Bonuses were paid conditional on reaching certain thresholds. Each manager's bonus payment depended only on the fields that he/she was responsible for, whereas the COO was responsible for all fields and thus received a bonus payment for any given field achieving a certain threshold. The true expected hourly earnings increase to managers due to the introduction of the performance bonus was significant (between 7%-25%). Rounds of data collection Baseline data collection and method The firm's personnel records containing information on each worker's productivity for each field day, presence/absenteeism for all workers and managers each field day, dates/seasonality. Data collection method and data collected Evaluation Outcome variables <p>Daily productivity of each worker.</p> Results <p>The introduction of managerial performance pay raised both the mean and the dispersion of productivity. Two underlying changes drive this effect: 1) there is a targeting effect so that managers allocate more of their effort towards high ability workers, 2) a selection effect so that the least able workers are employed less often and, are more readily fired. Estimates indicate that average productivity increases by 21% after the bonus is introduced. In comparison, a one standard deviation increase in a field's life cycle decreases productivity by 22%, and a one standard deviation increase in the average picking experience of workers increases productivity by 18%. Additionally, the earnings inequality across workers significantly increases after the introduction of managerial performance bonuses.</p> Intervention costs Not available. Cost benefit ratio Reference Bandiera, O., Barankay, I. & Rasul, I., 2007. 'Incentives for Managers and Inequality Among Workers: Evidence From a Firm-Level Experiment'. The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 729-773. 05. Citation for use in academic references
