DP9789 Incentive Pay and Performance: Insider Econometrics in a Multi-Unit Firm

Author(s): Hein Bogaard, Jan Svejnar
Publication Date: January 2014
Keyword(s): Banking, Central and Eastern Europe, Endogeneity of HRM Policies, Foreign Ownership, Incentives, Insider Econometrics
JEL(s): F23, G21, M52
Programme Areas: Labour Economics, Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9789

We exploit organizational reforms in a foreign-owned bank in Central-East Europe to study the implementation of modern HRM policies in an emerging market context. We have branch-level data and use our knowledge of the process that led to the adoption of the reforms to implement two estimators that address endogeneity bias in a complementary fashion: an IV approach and Generalized Propensity Score estimation. Our results show that some of the reforms had a positive impact on productivity, but they also underscore the risks of quantity-based incentives where quality is important.