Wage Structure and the Incentive Effects of Promotions

19 Pages Posted: 5 Jul 2006

See all articles by Marco van Herpen

Marco van Herpen

Boston Consulting Group

Kees Cools

Boston Consulting Group

Mirjam van Praag

University of Amsterdam - Department of Economics; Copenhagen Business School; Tinbergen Institute; IZA Institute of Labor Economics

Abstract

This paper studies wage structure characteristics and their incentive effects within one firm. Based on personnel records and an employee survey, we provide evidence that wages are attached to jobs and that promotions play a dominant role as a wage determinant. We furthermore show that a promotion affects both intrinsic and extrinsic motivation significantly, though in two different ways: An expected promotion increases extrinsic motivation whereas intrinsic motivation is highest subsequent to a realized promotion. The relationship between extrinsic motivation and expected promotions implies that promotions have a clear incentive effect, consistent with a key not yet tested prediction of the tournament model.

Suggested Citation

van Herpen, Marco and Cools, Kees and van Praag, Mirjam, Wage Structure and the Incentive Effects of Promotions. Kyklos, Vol. 59, No. 3, pp. 441-459, August 2006. Available at SSRN: https://ssrn.com/abstract=914249 or http://dx.doi.org/10.1111/j.1467-6435.2006.00341.x

Marco Van Herpen (Contact Author)

Boston Consulting Group ( email )

J.F. Kennedylaan 100
3741 EH Baarn
Netherlands

Kees Cools

Boston Consulting Group ( email )

J.F. Kennedylaan 100
3741 EH Baarn
Netherlands
+ 31 35 54 868 00 (Phone)

Mirjam Van Praag

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4096 (Phone)
+31 20 525 4182 (Fax)

Copenhagen Business School ( email )

Kilevej 14A
Frederiksberg, 2000
Denmark

Tinbergen Institute

Gustav Mahlerlaan
Amsterdam
Netherlands

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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