Redesigning Teams and Incentives in a Merger: An Experiment with Managers and Students

53 Pages Posted: 9 Apr 2004

See all articles by Claude Montmarquette

Claude Montmarquette

Center for Interuniversity Research and Analysis on Organization (CIRANO)

Jean-Louis Rulliere

University of Claude Bernard Lyon 1 - Institute of Finance and Insurance Science (ISFA)

Marie Claire Villeval

Groupe d'Analyse et de Théorie Economique (GATE), CNRS; IZA Institute of Labor Economics; Global Labor Organization (GLO)

Romain Zeiliger

National Center for Scientific Research (CNRS)

Date Written: March 2004

Abstract

After a merger, company officials face the challenge of making compensation schemes uniform and of redesigning teams with managers from companies with different incentives, work habits and recruiting methods. In this paper, we investigate the relationship between executive pay and performance after a merger by dissociating the respective influence of shifts, which occur in both compensation incentives and team composition. The results of a real effort experiment conducted with managers within a large pharmaceutical company not only show that changes in compensation incentives affect performance but also suggest that the sorting effect of incentives in the previous companies impact cooperation and efficiency after the merger. Replicating this experiment with students showed differences in strategy rather than in substance between the two groups of subjects with managers appearing performance driven while students are more cost driven.

Keywords: executive and team-based compensation, subject pool effects, real effort experiment, incentives, sorting, mergers

JEL Classification: C81, C92, J33, M52

Suggested Citation

Montmarquette, Claude and Rulliere, Jean-Louis and Villeval, Marie Claire and Zeiliger, Romain, Redesigning Teams and Incentives in a Merger: An Experiment with Managers and Students (March 2004). IZA Discussion Paper No. 1057. Available at SSRN: https://ssrn.com/abstract=523222

Claude Montmarquette

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada
(514) 985-4015 (Phone)
(514) 985-4039 (Fax)

Jean-Louis Rulliere

University of Claude Bernard Lyon 1 - Institute of Finance and Insurance Science (ISFA) ( email )

50, Avenue Tony Garnier
Lyon Cedex 07, 69366
France
+33 670 43 60 87 (Phone)

Marie Claire Villeval (Contact Author)

Groupe d'Analyse et de Théorie Economique (GATE), CNRS ( email )

93, chemin des Mouilles
Ecully, 69130
France
+33 472 86 60 79 (Phone)
+33 472 86 60 90 (Fax)

HOME PAGE: http://www.gate.cnrs.fr/equipe/perso/villeval/villeval.html

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Global Labor Organization (GLO) ( email )

Collogne
Germany

Romain Zeiliger

National Center for Scientific Research (CNRS) ( email )

3, rue Michel-Ange
Paris cedex 16, 75794
France

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