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Compensation, Promotion, and Personality

Paper Session

Sunday, Jan. 7, 2024 10:15 AM - 12:15 PM (CST)

Grand Hyatt, Crockett A/B
Hosted By: Labor and Employment Relations Association
  • Chair: Krista Ruffini, Georgetown University

A Cross-Cultural Study on Employee Stock Ownership Plans: A Human Resource Process Perspective

Kyongji Han
,
Baylor University
Andrea Kim
,
Sungkyunkwan University
Joseph Blasi
,
Rutgers University
Yongguen Kim
,
POSCO Research Institute

Abstract

This study aims to improve our understanding on employee stock ownership plans (ESOP) by delving into its unknown psychological process pertaining to the attribution and personality traits of employees. Borrowing a key notion from an emerging process perspective in the field of strategic human resource management, we conceptualize ESOP attribution, which refers to employees’ perception on why ESOP is in place in their organization. Next, based on personality trait research, we theoretically identify some of the personality traits that are positively related to positive ESOP attribution (i.e., the organization adopts and implements ESOP to promote the well-being and work quality of its employees). Furthermore, based on the literature of psychological ownership, we propose that psychological ownership for the organization (POO) is an immediate outcome of employees with positive attribution on ESOP. By analyzing survey data collected from 693 employees in the U.S. and South Korea, we found that agreeableness, conscientiousness, extraversion, and openness to experience are positively related to POO directly as well as indirectly through positive ESOP attributions. Also, these mediational linkages appeared to be more pronounced among employees in South Korea, which is a collectivist society. Finally, our supplementary analyses with each sample ascertained these findings by indicating the same pattern of results in the South Korean sample, but not in the U.S. sample. Our findings provide theoretical implications for diverse scholarships such as employee ownership, human resource attributions, and international human resource management. In addition, our work offers practical information regarding who may be motivated by ESOP as intended.

Peer Group Comparisons and Pay Spillovers in the CEO Labor Market

Christopher Boone
,
University of Massachusetts-Amherst
Michael Paz
,
Cornell University

Abstract

When setting executive pay levels, firms utilize information on pay at peer firms as part of a compensation benchmarking process. This paper examines the effects of this benchmarking process on CEO pay. Previous studies have demonstrated that, in an effort to increase their executive compensation, some firms manipulate this benchmarking process by stategically populating their peer comparison groups with high-paying firms. We build on this finding to investigate whether peer group manipulation by one firm has spillover effects on CEO pay at other firms. We show that a firm's CEO pay is correlated with the degree of pay manipulation by its chosen peers, regardless of that own firm's level of pay manipulation, indicating that shocks to pay at one firm may propagate through the benchmarking network. To provide support for a causal interpretation, our empirical strategy examines the effects of pay manipulation at a firm's chosen peers as well as for predicted peers who were not selected by the firm. Even among firms with good corporate governance and no apparent pay manipulation, pay may be inflated by the actions of other firms. Likewise, firms that manipulate their peer groups for reasons that are arguably justifiable from a governance standpoint---to reward a well-performing manager, for example---may inadvertently contribute to pay increases at other firms. Our findings provide support for the idea that compensation benchmarking in the context of imperfect competition can lead to systematic effects on pay---in this case, the effect is to increase the overall level of CEO pay. We connect these results to a model of labor market power where norms about pay influence relative bargaining power and the division of the surplus, and benchmarking influences these norms by providing a justification for the level of compensation.

Promotion Incentives, Career Decisions, and Police Performance

Taeho Kim
,
University of Toronto

Abstract

Public sector organizations often struggle to provide adequate promotion incentives. How do bureaucrats behave when their promotion opportunities suddenly become limited? I study how bureaucrats' on-the-job performance and career decisions respond to changes in promotion incentives in a large police organization. I use a unique setting in Chicago Police Department, where strict eligibility criteria arbitrarily reduced the promotion chances of some officers relative to an otherwise similar group of officers. The deterioration of chances to become managers induced the ineligible officers to sharply raise arrest performance and join high-performance tactical teams. Officers likely pursued such assignments to have alternative rewarding career that entails more meaningful work, autonomy, and prestige. I do not find that ineligible officers increased performance merely to gain advantage in future promotion opportunities, to increase overpay, or to manifest resentment. Taken together, I find evidence that bureaucrats who are faced with reduced promotion incentives maintain their motivation and effort levels. Given sufficient alternative channels to develop their career, they respond by increasing their attention on other ways to improve their career trajectories.

Discussant(s)
Yong Suk Lee
,
University of Notre Dame
JEL Classifications
  • M1 - Business Administration
  • M5 - Personnel Economics