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Rank vs Money: Evidence from Managers

Collin Raymond and Julia Shvets

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We study the existence and relative importance of status concerns compared to financial incentives among managers in a large firm where the bonus is determined through a high powered tournament. Using detailed data about both performance and labour input decisions, we consider managers' response to feedback about their rank as well as monetary bonuses. We find that managers exhibit rank concerns that are distinct from, but co-exist with, financial performance incentives. These rank concerns are important: moving from the bottom to the top of the firm's ranking is worth up to $4,500 a year to the average manager, or 48% of their annual performance bonus. Moreover, managers exhibit desire to catch up (i.e., utility is concave in rank): when managers get a bad rank they respond by improving performance, rather than getting discouraged. Our data allow us to identify these effects using both outputs (performance) as well as inputs (staffing decisions) of the managers.

Keywords: Status; Incentives; Relative performance; Intrinsic motivation (search for similar items in EconPapers)
JEL-codes: D83 J22 J33 M12 M52 (search for similar items in EconPapers)
Date: 2022-10-13
New Economics Papers: this item is included in nep-hrm, nep-lma and nep-upt
Note: js591
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