Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives

37 Pages Posted: 14 Jun 2005

See all articles by Christian Belzil

Christian Belzil

Ecole Polytechnique, Paris - Department of Economic Sciences; National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); Institute for the Study of Labor (IZA); Center for Interuniversity Research and Analysis on Organization (CIRANO)

Michael L. Bognanno

Temple University - Department of Economics; IZA Institute of Labor Economics

Date Written: June 2005

Abstract

This paper explores the dynamics of wage growth in corporate hierarchies. Using panel data techniques, we estimate the causal effect of current and past transitions in reporting level and past earnings growth on components of current earnings and earnings growth using a large panel of US executives. After conditioning on unobserved heterogeneity, current compensation growth is positively correlated with past promotion outcomes but negatively correlated with past compensation growth. In a flexible model of wage growth, there is an important asymmetry between the effect of a promotion and a demotion. The effect of promotion is smaller in magnitude than the effect of a demotion. The causal effect of a promotion is positive on both growth in base pay and total cash compensation but is negative on bonus growth. The effect of a demotion is negative on growth in all pay components.

Keywords: earnings growth, promotions, halo effects, hierarchies, internal labor markets

JEL Classification: C33, J41, M5, M51

Suggested Citation

Belzil, Christian and Bognanno, Michael L., Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives (June 2005). Available at SSRN: https://ssrn.com/abstract=742324

Christian Belzil (Contact Author)

Ecole Polytechnique, Paris - Department of Economic Sciences ( email )

Ecole Polytechnique
Department of Economics
Paris, 75005
France

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE)

92245 Malakoff Cedex
France

Institute for the Study of Labor (IZA)

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

Center for Interuniversity Research and Analysis on Organization (CIRANO)

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada

Michael L. Bognanno

Temple University - Department of Economics ( email )

Philadelphia, PA 19122
United States

IZA Institute of Labor Economics

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

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