Incentive Design for Talent Discovery

50 Pages Posted: 12 Feb 2021

See all articles by Erik Madsen

Erik Madsen

New York University

Basil Williams

New York University (NYU)

Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business

Date Written: November 20, 2020

Abstract

In many organizations, employees enjoy significant discretion regarding project selection. If projects differ in their informativeness about an employee’s quality, project choices will be distorted whenever career concerns are important. We analyze a model in which an organization can shape its employees’ career concerns by committing to a system for allocating a limited set of promotions. We show that the organization optimally overpromotes certain categories of underperforming employees, trading off efficient matching of employees to promotions in return for superior project selection. When organizations can additionally pay monetary bonuses, we find that overpromotion is a superior incentive tool when the organization needs to offer high-powered incentives; otherwise, bonuses perform better.

Suggested Citation

Madsen, Erik and Williams, Basil and Skrzypacz, Andrzej, Incentive Design for Talent Discovery (November 20, 2020). Available at SSRN: https://ssrn.com/abstract=3705627 or http://dx.doi.org/10.2139/ssrn.3705627

Erik Madsen (Contact Author)

New York University ( email )

19 West 4th Street
New York, NY 10012
United States

Basil Williams

New York University (NYU) ( email )

19 W 4th Street
New York, NY 10003-711
United States

Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-736-0987 (Phone)
650-725-9932 (Fax)

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