Setting Incentives: Temporary Performance Premiums versus Promotion Tournaments

Volker Meier

LABOUR, 2004, vol. 18, issue 4, 661-674

Abstract: Abstract. Two alternative relative compensation schemes are compared with respect to the output that can be generated at a given sum of salaries. While the promotion regime guarantees that any salary increase is permanent, the premium system allows a reduction in the income of an agent to the base salary after one period. It is shown that the optimum promotion tournament system induces a higher total output than the optimum premium system. This result is obtained because a promotion regime allows a distortion in a contest in favor of winners of previous contests.

Date: 2004
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https://doi.org/10.1111/j.1121-7081.2004.00282.x

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Working Paper: Setting incentives: Temporary performance premiums versus promotion tournaments (2004)
Working Paper: Setting Incentives: Temporary Performance Premiums Versus Promotion Tournaments (2001)
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