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Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives

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Author Info
Christian Belzil () (CNRS-GATE, CIRANO, CIREQ and IZA Bonn)
Michael Bognanno (Temple University and IZA Bonn)

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Abstract

This paper explores the dynamics of wage growth in corporate hierarchies. Using panel data techniques, we estimate the causal effect of current and past transitions in reporting level and past earnings growth on components of current earnings and earnings growth using a large panel of US executives. After conditioning on unobserved heterogeneity, current compensation growth is positively correlated with past promotion outcomes but negatively correlated with past compensation growth. In a flexible model of wage growth, there is an important asymmetry between the effect of a promotion and a demotion. The effect of promotion is smaller in magnitude than the effect of a demotion. The causal effect of a promotion is positive on both growth in base pay and total cash compensation but is negative on bonus growth. The effect of a demotion is negative on growth in all pay components.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1630.

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Length: 37 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1630

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Related research
Keywords: earnings growth; promotions; halo effects; hierarchies; internal labor markets;

Other versions of this item:

Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
M5 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics
M51 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Firm Employment Decisions; Promotions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Calvo, Guillermo A & Wellisz, Stanislaw, 1979. "Hierarchy, Ability, and Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 991-1010, October. [Downloadable!] (restricted)
  2. Gibbs, Michael, 1995. "Incentive compensation in a corporate hierarchy," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 247-277, April. [Downloadable!] (restricted)
  3. Thomas J. Dohmen & Ben Kriechel & Gerard A. Pfann, 2004. "Monkey bars and ladders: The importance of lateral and vertical job mobility in internal labor market careers," Journal of Population Economics, Springer, vol. 17(2), pages 193-228, 06. [Downloadable!] (restricted)
    Other versions:
  4. John Haltiwanger & Marilyn E. Manser & Robert Topel, 1998. "Labor Statistics Measurement Issues," NBER Books, National Bureau of Economic Research, Inc, number halt98-1, September.
  5. Lazear, E.P., 1990. "The Job as a Concept," Papers e-90-24, Stanford - Hoover Institution.
  6. McCue, Kristin, 1996. "Promotions and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 175-209, April. [Downloadable!] (restricted)
  7. Christian Belzil & Michael Bognanno, 2004. "The Promotion Dynamics of American Executives," CIRANO Working Papers 2004s-05, CIRANO. [Downloadable!]
    Other versions:
  8. Michael Gibbs & Wallace Hendricks, 2004. "Do formal salary systems really matter?," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 58(1), pages 71-93, October. [Downloadable!] (restricted)
  9. Bognanno, Michael L, 2001. "Corporate Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 290-315, April. [Downloadable!] (restricted)
  10. Edward P. Lazear, 1999. "Personnel Economics: Past Lessons and Future Directions," NBER Working Papers 6957, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. James Malcomson & James Fairburn, 2000. "Performance, Promotion, and the Peter Principle," Economics Series Working Papers 026, University of Oxford, Department of Economics.
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  12. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn. [Downloadable!] (restricted)
  13. Jonathan S. Leonard, 1990. "Executive pay and firm performance," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 43(3), pages 13-29, February.
  14. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 881-919, November. [Downloadable!] (restricted)
  15. Robert Gibbons, 1997. "Incentives and Careers in Organizations," NBER Working Papers 5705, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Robert Gibbons & Michael Waldman, 1999. "A Theory Of Wage And Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1321-1358, November. [Downloadable!] (restricted)
  17. Canice Prendergast, 1998. "What Happens within Firms? A Survey of Empirical Evidence on Compensation Policies," NBER Chapters, in: Labor Statistics Measurement Issues, pages 329-356 National Bureau of Economic Research, Inc. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Altmann, Steffen & Falk, Armin & Wibral, Matthias, 2008. "Promotions and Incentives: The Case of Multi-Stage Elimination Tournaments," IZA Discussion Papers 3835, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Giovanni Russo & Wolter Hassink, 2008. "The Part-Time Wage Gap: a Career Perspective," De Economist, Springer, vol. 156(2), pages 145-174, June. [Downloadable!] (restricted)
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