The Nexus between Contract Duration and the Use of Formal and Informal Incentive Pay

Dominique Demougin () and Oliver Fabel

LABOUR, 2019, vol. 33, issue 3, 351-370

Abstract: We investigate a firm's choice of formal and informal effort incentives in a repeated game setting with undistorted signaling and liquidity‐constrained agents. The model allows for a simple geometric representation of credibility and incentive‐feasibility effects on optimal contract design. If credibility constitutes a binding constraint, explicit, i.e. enforceable, performance pay and discretionary salary promises are unambiguous substitutes and higher employee performance is associated with lower‐powered bonus pay. Using personnel data from an insurance company, we show that the model's predictions regarding the mediating role of expected contract duration on these relationships are consistent with remuneration practices.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/labr.12151

Related works:
Working Paper: The Nexus between Contract Duration and the Use of Formal and Informal Incentive Pay (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:labour:v:33:y:2019:i:3:p:351-370

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1121-7081

Access Statistics for this article

LABOUR is currently edited by Franco Peracchi

More articles in LABOUR from CEIS Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().