Luck in a Flat Hierarchy: Wages, bonuses and noise.

John Sessions; John Skatun

doi:10.1111/1475-4932.12701

Luck in a Flat Hierarchy: Wages, bonuses and noise.

John Sessions^* (Corresponding Author), John Skatun

^*Corresponding author for this work

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

We study bonuses in a flat hierarchy and find effort optimality to be violated a two worker-type model with noisy performance indicators. Dedicated workers extract informational rents from firms whilst slack worker effort is inefficiently low. Whilst increases in measurement noise reduce the supply-side effort effects of increasing bonuses. Our model helps to explain empirical observations that bonuses are more prevalent and larger in jobs with noisy environments, such as within the financial sector.

Original language	English
Journal	The Economic Record
Early online date	21 Oct 2022
DOIs	https://doi.org/10.1111/1475-4932.12701
Publication status	E-pub ahead of print - 21 Oct 2022

Keywords

Bonuses
banks
informational rent

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title = "Luck in a Flat Hierarchy: Wages, bonuses and noise.",

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AB - We study bonuses in a flat hierarchy and find effort optimality to be violated a two worker-type model with noisy performance indicators. Dedicated workers extract informational rents from firms whilst slack worker effort is inefficiently low. Whilst increases in measurement noise reduce the supply-side effort effects of increasing bonuses. Our model helps to explain empirical observations that bonuses are more prevalent and larger in jobs with noisy environments, such as within the financial sector.

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KW - informational rent

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M3 - Article

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JF - The Economic Record

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Luck in a Flat Hierarchy: Wages, bonuses and noise.

Abstract

Keywords

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