Ec 8

Question 1

Incentive Alignment Problem

Answer 1

Motivating employees to use decision-making authority in service provision and to do so in a way that leads to better financial performance in the future

Question 2

Campbell (2012)

Answer 2

Employees that better fit with the organizational design are more likely to execute the firm
strategy effectively

Question 3

High identification with the firm’s objectives

Answer 3

Lower disutility of effort
Higher effort choice

Question 4

Employee identification

Answer 4

the willingness of employees to pursue the objectives set by the firm

Question 5

Dierynck

Answer 5

Including discretionary adjustment in a performance-based contract generates a sorting effect on employee identification because it will increase (decrease) the preference for a performance-based contract of those with strong (weak) identification.

Question 6

Kachelmeier & williamson (2010)

Answer 6

• Employment contracts that explicitly value creativity are more likely to attract more
  creative employees
• The sorting effect on creativity outcomes is however linked to early creativity.
• Over time, employees that self-select into a creativity-weighted contract do as good as
  employees that self-select into a quantity-oriented contract

Question 7

Characteristics of preferred employees:

Answer 7

empathy, a desire to help others, wants to make
impact on others, confidence in decision making, willingness to take ownership and
accept accountability, willingness to take risk
and a desire to learn

Question 8

When is a strong focus on employee selection more useful?

Answer 8

• contracting on output is difficult (verification)
• If you search for a particular skill that is difficult to acquire by learning or development (skills needed)
• If employee behavior in case of a misfit between the employee and the firm can have large negative consequences (consequences of decisions)

Question 9

How can we solve the problem

Answer 9

use CV
Use psychological assessments
Design the compensation contract in such a way so that only those applicant with the characteristics you prefer will accept the contract.