CDEP-CGEG Working Paper No. 10

Incentive Pay and Performance: Insider Econometrics in a Multi-Unit Firm

Hein Bogaard and Jan Svejnar

Abstract:
We exploit organizational reforms in a foreign-owned bank in Central-East Europe to study the implementation of modern HRM policies in an emerging market context. We have branch-level data and use our knowledge of the process that led to the adoption of the reforms to implement two estimators that address endogeneity bias in a complementary fashion: an IV approach and Generalized Propensity Score estimation. Our results show that some of the reforms had a positive impact on productivity, but they also underscore the risks of quantity-based incentives where quality is important.

Published in Labour Economics, Volume 54, October 2018, Pages 100-115