Compensation and Benefits →
- 09 Feb 2016
- Working Paper Summaries
Executive Compensation and Misconduct: Environmental Harm
To what extent does executive compensation push firms into environmental law-breaking in particular and misconduct in general? This study finds that changing a CEO’s compensation from 100 percent stock to 100 percent options resulted in a 60 percent increased odds of environmental harm and close to a doubling of the magnitude of harm. We find similar results for financial accounting misconduct. A rule change making the higher powered incentives more costly for firms to provide reduced incidences.
- 18 Nov 2015
- Research & Ideas
Who Really Determines CEO Salary Packages?
Every CEO is different, as is every company. So why does one executive compensation package tend to look just like another? The answer lies in the prevalence of interlocking directorates and the use of compensation consultants, according to research by Susanna Gallani. Open for comment; 0 Comments.
- 04 Nov 2015
- Working Paper Summaries
Do People Who Care About Others Cooperate More? Experimental Evidence from Relative Incentive Pay
This paper explores how the degree to which individuals care about other workers affects their own performance when faced with relative performance pay.
- 08 Sep 2015
- Working Paper Summaries
Through the Grapevine: Network Effects on the Design of Executive Compensation Contracts
Designing the compensation package for a CEO is a complex task with many variables and uncertainties. While in principle the structure of executive compensation should be directed to aligning the goals of the executive with the strategic goals of the firm, the adoption of common models of compensation may tilt the compensation structure away from this alignment. It is thus important to identify the drivers of compensation similarity across firms. In this paper the author identifies such drivers – above and beyond known economic and governance characteristics of the firm – by providing evidence that firms connected through board networks or hiring common compensation consultants exhibit greater similarity in the structure of CEO compensation. At the same time, however, different networks influence different aspects of the compensation design.
- 15 Sep 2014
- Research & Ideas
Are the Most Talented Employees the Highest Paid? Yes—If They’re Bankers
A recent study by Claire Célérier and Boris Vallée finds that the French finance industry compensates employees largely according to how talented they are. Other high-paying industries? Not so much. Closed for comment; 0 Comments.
- 24 Jul 2013
- Op-Ed
Detroit Files for Bankruptcy: HBS Faculty Weigh In
After a long period of economic decline, the city of Detroit filed for bankruptcy protection last week. John Macomber, Robert Pozen, Eric Werker, and Benjamin Kennedy offer their views on some down-the-road scenarios. Closed for comment; 0 Comments.
- 08 Apr 2013
- Research & Ideas
How to Demotivate Your Best Employees
Many companies hand out awards such as "employee of the month," but do they work to motivate performance? Not really, says professor Ian Larkin. In fact, they may turn off your best employees altogether. Closed for comment; 0 Comments.
- 28 Nov 2012
- What Do You Think?
Should Pay-for-Performance Compensation be Replaced?
Summing up: In spite of its naysayers, pay for performance compensation still makes sense to most of us, according to those responding to Jim Heskett's column on the subject. But there is a difference of opinion of about when and how it works and how it should be structured. Closed for comment; 0 Comments.
- 13 Aug 2012
- Research & Ideas
When Good Incentives Lead to Bad Decisions
New research by Associate Professor Shawn A. Cole, Martin Kanz, and Leora Klapper explores how various compensation incentives affect lending decisions among bank loan officers. They find that incentives have the power to change not only how we make decisions, but how we perceive reality. Closed for comment; 0 Comments.
- 31 Oct 2011
- Research & Ideas
The Most Powerful Workplace Motivator
When evaluating compensation issues, economists often assume that both an employer and an employee make rational, albeit self-interested choices while working toward a goal. The problem, says Assistant Professor Ian Larkin, is that the most powerful workplace motivator is our natural tendency to measure our own performance against the performance of others. Open for comment; 0 Comments.
- 25 May 2011
- HBS Case
QuikTrip’s Investment in Retail Employees Pays Off
Instead of treating low-paid staffers as commodities, a new breed of retailers such as QuikTrip assigns them more responsibility and invests in their development, says professor Zeynep Ton. The result? Happy customers and even happier employees. Key concepts include: Unusual for a retailer, QuikTrip offers its operational employees above-average wages, job security, and significant benefits. By using operational efficiencies and standardization, QuikTrip reduces complexity to create higher employee productivity and fewer errors. By investing in employees and giving them more responsibility, QuikTrip enjoys a competitive advantage in service and benefits from continuous process improvement. Closed for comment; 0 Comments.
- 19 Nov 2010
- Working Paper Summaries
Do Bonuses Enhance Sales Productivity? A Dynamic Structural Analysis of Bonus-Based Compensation Plans
Companies generally pay their sales staff with some combination of salary, commissions, and bonuses for meeting quotas-with sales force costs averaging about 10 percent of sales revenue in the United States. This paper aims to gain insight into the most effective way to design a compensation plan, concentrating on whether bonuses boost sales productivity and whether they should be awarded quarterly or annually. Research, focusing on the sales force of a large office supply company, was conducted by Harvard Business School professor Thomas Steenburgh and Doug J. Chung and K. Sudhir of the Yale School of Management. Key concepts include: Bonuses do increase productivity. Quarterly bonuses increase sales force productivity more than annual bonuses. Sales people tend to give up when far away from reaching a quota, but they don't slow down once a quota is reached-especially if a firm offers commissions for overachievement. Closed for comment; 0 Comments.
- 01 Feb 2010
- Research & Ideas
The ‘Luxury Prime’: How Luxury Changes People
What effect does luxury have on human cognition and decision making? According to new research, there seems to be a link between luxury and self interest, an insight that may help curb corporate excesses. Roy Y.J. Chua discusses findings from his work conducted with Xi Zou of London Business School. Closed for comment; 0 Comments.
- 21 Sep 2009
- Research & Ideas
Excessive Executive Pay: What’s the Solution?
Now that the worst fears about economic meltdown are receding, what should be done about lingering issues such as over-the-top executive compensation? Does government have a role? Is it time we rethink corporate governance? HBS faculty weigh in. From the HBS Alumni Bulletin. Key concepts include: With White House support, congressional leaders are intent on shifting the balance of power in the boardroom away from management. Skeptics say more than two decades of well-meaning attempts to constrain ever-soaring corporate pay and to reform governance through legislation, regulation, and shareholder pressure have, for the most part, failed or even backfired. According to Professor Brian Hall, it is not a given that executive pay practices had a role in creating the financial crisis. Director independence on boards is a mixed blessing. Independence has a downside when directors don't understand the business, says Professor Jay Lorsch. We need to rethink corporate governance structure in fundamental ways for the 21st century, according to Professor Rakesh Khurana. Closed for comment; 0 Comments.
- 14 Apr 2003
- Research & Ideas
Pay-for-Performance Doesn’t Always Pay Off
Paying your employees more for hitting specific targets may backfire, according to HBS professor Michael Beer. As he learned in his study of thirteen pay-for-performance plans at Hewlett-Packard, the unspoken contract may make or break these programs. Closed for comment; 0 Comments.
- 26 Nov 2001
- Op-Ed
Why Corporate Budgeting Needs To Be Fixed
Not to mince words, but corporate budgeting is a joke, argues HBS professor emeritus Michael C. Jensen in this Harvard Business Review excerpt. The problem isn't with the budget process—it's when budget targets are used to determine compensation. Closed for comment; 0 Comments.
How do Private Equity Fees Vary Across Public Pensions?
As state and local defined-benefit pensions increasingly shift capital from traditional asset classes to private-market investment vehicles, this analysis shows that public pensions investing in the same private-market fund can experience very different returns.
Do Incentive Plans for Exemplary Employees Lead to Productive or Counterproductive Outcomes?
This study of a mobile phone retail company shows that incentive contracts that selectively incentivize exemplary employees (that is, preferential incentive plans) may be helpful when companies want to motivate employees to pursue objectively measured goals in addition to relevant tasks not explicitly written into their contracts. However, preferential incentive plans may lead to unintended consequences if they trigger perceptions of inequity.