Aligning Ambition and Incentives

Eloïc Peyrache () and Alexander Koch
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Eloïc Peyrache: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

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Abstract: Labor turnover creates longer term career concerns incentives that motivate employees in addition to the short-term monetary incentives provided by the current employer. We analyze how these incentives interact and derive implications for the design of incentive contracts and organizational choice. The main insights stem from a trade-off between "good monetary incentives" and "good reputational incentives." We show that the principal optimally designs contracts to create ambiguity about agents' abilities. This may make it optimal to contract on relative performance measures, even though the extant rationales for such schemes are absent. Linking the structure of contracts to organizational design, we show that it can be optimal for the principal to adopt an opaque organization where performance is not verifiable, despite the constraints that this imposes on contracts.

Keywords: labor turnover; job satisfaction; personnel management; employers (search for similar items in EconPapers)
Date: 2011-10
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Citations: View citations in EconPapers (7)

Published in Journal of Law, Economics, and Organization, 2011, 27 (3), pp.655-688. ⟨10.1093/jleo/ewp034⟩

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Related works:
Journal Article: Aligning Ambition and Incentives (2011)
Working Paper: Aligning Ambition and Incentives (2008)
Working Paper: Aligning Ambition and Incentives (2005)
Working Paper: Aligning Ambition and Incentives (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00641638

DOI: 10.1093/jleo/ewp034

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