The Rise of Individual Performance Pay

Ola Kvaløy and Trond Olsen

No 2145, CESifo Working Paper Series from CESifo

Abstract: Why does individual performance pay seem to prevail in human capital intensive industries? We present a model that may 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 team effects — complementary tasks and peer pressure, respectively — we show that while team-based incentives are optimal if agents are dispensable, it may be costly, and in fact suboptimal, to provide team incentives once the agents become indispensable.

Keywords: relational contracts; multiagent moral hazard; indispensable human capital (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The Rise of Individual Performance Pay (2012)
Working Paper: The rise of individual performance pay (2008)
Working Paper: The rise of individual performance pay (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2145

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