Setting Incentives: Temporary Performance Premiums Versus Promotion Tournaments

Volker Meier

No 432, CESifo Working Paper Series from CESifo

Abstract: Two alternative relative compensation schemes are compared with respect to total 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 occurs because a promotion regime allows distortion in a contest in favor of winners of previous contests.

Keywords: Tournament; relative compensation; internal labor markets (search for similar items in EconPapers)
Date: 2001
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Related works:
Journal Article: Setting Incentives: Temporary Performance Premiums versus Promotion Tournaments (2004)
Working Paper: Setting incentives: Temporary performance premiums versus promotion tournaments (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_432

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