Managerial Incentives and Favoritism in Promotion Decisions: Theory and Field Evidence

Johannes Berger (), Claus Herbertz () and Dirk Sliwka
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Johannes Berger: University of Cologne
Claus Herbertz: University of Cologne

No 5543, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper investigates the effects of managerial incentives on favoritism in promotion decisions. First, we theoretically show that favoritism leads to a lower quality of promotion decisions and in turn lower efforts. But the effect can be mitigated by pay-for-performance incentives for managers who decide upon promotion. Second, we analyze matched employer-employee survey data with detailed firm level information on managerial incentive schemes and find that perceived promotion quality is indeed substantially higher when managers receive performance-related pay or participate in gain sharing plans.

Keywords: incentives; favoritism; nepotism; tournaments (search for similar items in EconPapers)
JEL-codes: J33 J71 M51 M52 M54 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2011-03
New Economics Papers: this item is included in nep-bec, nep-cbe, nep-cta, nep-hrm and nep-lab
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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