The Rise of Individual Performance Pay

Ola Kvaløy and Trond Olsen

Journal of Economics & Management Strategy, 2012, vol. 21, issue 2, 493-518

Abstract: Existing empirical evidence suggests that individual performance pay is more prevalent in human‐capital‐intensive industries. We introduce a model that can contribute to 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 complementary tasks, we show that although team‐based incentives are optimal if agents are dispensable, it may be costly, and, in fact, suboptimal, to provide team incentives when the agents become indispensable.

Date: 2012
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Citations: View citations in EconPapers (7)

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https://doi.org/10.1111/j.1530-9134.2012.00332.x

Related works:
Working Paper: The rise of individual performance pay (2008)
Working Paper: The Rise of Individual Performance Pay (2007)
Working Paper: The rise of individual performance pay (2006)
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