Make or Break
The Negative Consequences of Loss-Framed Performance Incentives
Lamar Pierce, Alex Rees-Jones & Charlotte Blank
NBER Working Paper, January 2020
Abstract:
Behavioral economists have proposed that loss-averse employees increase productivity when bonuses are "loss framed" — prepaid then clawed back if targets are unmet. We theoretically document that loss framing raises incentives for costly risk mitigation and for inefficient multitasking, potentially leading to large negative performance effects. We empirically document evidence of these concerns in a nationwide field experiment among 294 car dealers. Dealers randomized into loss-framed (but financially identical) contracts sold 5% fewer vehicles than control dealers, generating a revenue loss of $45 million over 4 months. We discuss implications regarding the use of behavioral economics to motivate both employees and firms.
Political Attitudes, Partisanship, and Merger Activity
Ran Duchin et al.
University of Washington Working Paper, November 2019
Abstract:
This paper provides novel evidence that similarity in employees’ political attitudes plays a role in mergers and acquisitions. Using detailed data on individual campaign contributions to Democrats and Republicans, our estimates show that firms are considerably more likely to announce a merger, complete a merger, and a have shorter time-to-completion when their political attitudes are closer. Furthermore, acquisition announcement returns and post-merger operating performance are significantly higher when the acquirer and the target have more similar political attitudes. The effects of political partisanship on mergers are stronger in more recent years, when the political polarization in the U.S. is greater. Overall, we provide estimates that political attitudes and polarization have real effects on the allocation of assets in the economy.
Working Class CEOs: Formation of Occupational Norms and Corporate Labor Policies
Henrik Cronqvist, Irena Hutton & Danling Jiang
University of Miami Working Paper, November 2019
Abstract:
We examine the relation between the CEO’s childhood socioeconomic class and corporate labor policies. We find that CEOs raised in low socioeconomic class families are less likely to invest in employee friendly firm policies measured by several types of labor and employment litigation, including litigation by unions, and occupational safety measures. These results are confirmed by crowdsourced employee firm reviews across several workplace dimensions. Our findings are supported by the studies of within-family transmission of occupational knowledge and formation of occupational norms as well as development of empathy and altruistic behaviors in children.
Cross-Cultural and Cross-Organizational Evidence for an Evolved Hazing Motivation
Aldo Cimino et al.
Evolutionary Psychology, November 2019
Abstract:
We report the first cross-cultural and cross-organizational evidence for an evolved hazing motivation. Using experiments performed in the United States, Japan, and among members of a hazing and a nonhazing organization, we demonstrate an invariant set of core hazing predictors. In particular, we show that the perception of near-term group benefits, which would have been ancestrally exploitable by new group members, substantially increases desired hazing severity in all samples. Results are discussed in light of human organizational psychology and the difficulty of reliably suppressing hazing behavior.
Are Secondhand Internal Whistleblowing Reports Credible?
Stephen Stubben & Kyle Welch
University of Utah Working Paper, October 2019
Abstract:
This study examines the characteristics, credibility, and value of internal whistleblowing reports based on secondhand information. We analyze over two million reports submitted to over one thousand publicly traded U.S. firms between 2004 and 2017 and find that claims in secondhand reports are 47.7% more likely than firsthand reports to be substantiated by management, which suggests that management views many secondhand reports as credible. Further, we find negative associations between the number of secondhand reports and negative outcomes including lawsuits and government fines. These findings are consistent with secondhand reports providing valuable information that allows management to identify and address issues before they become more costly to the firm.
Social media-predicted personality traits and values can help match people to their ideal jobs
Margaret Kern et al.
Proceedings of the National Academy of Sciences, 26 December 2019, Pages 26459-26464
Abstract:
Work is thought to be more enjoyable and beneficial to individuals and society when there is congruence between one’s personality and one’s occupation. We provide large-scale evidence that occupations have distinctive psychological profiles, which can successfully be predicted from linguistic information unobtrusively collected through social media. Based on 128,279 Twitter users representing 3,513 occupations, we automatically assess user personalities and visually map the personality profiles of different professions. Similar occupations cluster together, pointing to specific sets of jobs that one might be well suited for. Observations that contradict existing classifications may point to emerging occupations relevant to the 21st century workplace. Findings illustrate how social media can be used to match people to their ideal occupation.
Workplace Knowledge Flows
Jason Sandvik et al.
NBER Working Paper, January 2020
Abstract:
What prevents the spread of information among coworkers, and which management practices facilitate workplace knowledge flows? We conducted a field experiment in a sales company, addressing these questions with three active treatments. (1) Encouraging workers to talk about their sales techniques with a randomly chosen partner during short meetings substantially lifted average sales revenue during and after the experiment. The largest gains occurred for those matched with high-performing coworkers. (2) Worker-pairs given incentives to increase joint output increased sales during the experiment but not afterward. (3) Worker-pairs given both treatments had little improvement above the meetings treatment alone. Managerial interventions providing structured opportunities for workers to initiate conversations with peers resulted in knowledge exchange; incentives based on joint output gains were neither necessary nor sufficient for knowledge transmission.
Evolution of Community Deterrence: Evidence from the National Hockey League
Craig Depken, Peter Groothuis & Mark Strazicich Contemporary
Economic Policy, forthcoming
Abstract:
Community and specialized enforcement are recognized as important components of deterring antisocial behavior. To provide insights on the interplay between deterrence methods, we examine the empirical evolution of fighting and scoring in the National Hockey League using time series data. We identify structural changes that correlate with changes in player behavior and rules. In particular, we find that player behavior related to fighting changed 4 or 5 years prior to most rule changes aimed at reducing fighting. We conclude that the decline in fighting in hockey was more closely associated with a change in community rather than specialized deterrence methods.
Matching and Winning? The Impact of Upper and Middle Managers on Firm Performance in Major League Baseball
Thomas Peeters, Steven Salaga & Matthew Juravich
Management Science, forthcoming
Abstract:
We investigate the joint impact of managers at different hierarchical levels on firm performance in Major League Baseball. We separately quantify the contribution of upper and middle managers and the impact of their match quality — the degree to which managers cooperate effectively across layers to impact firm success. We establish that match quality is a statistically significant and economically meaningful driver of firm performance. Higher-quality managers tend to be matched together across levels and achieve higher match quality during their joint employment. Match quality does not improve over the length of a joint employment spell, but lower match quality is found in pairs with more divergent educational attainment and prior strategic approaches. Hence, match quality is partly innate, and manager pairings may have difficulty improving their cooperation through learning. When we control for match quality, we find significantly lower estimates of heterogeneity in manager ability compared with commonly used estimators of managerial impact. Still, both middle and upper managers retain a meaningful impact on firm performance.