Week 5 papers Flashcards
What is the Peter Principle?
The idea that people will be promoted up to a point where they are no longer qualified
What are the 2 functions of promotions?
Grabner & Moers (2013b): Managers’ Choices of Performance Measures in Promotion Decisions: An Analysis of Alternative Job Assignments
- Incentives: tool to motivate employees to work hard since they can be rewarded with promotion
- Sorting: employees with more potential and skills get selected faster for higher functions. Promotions can help assign employees to jobs higher in the hierarchy based on their ability to perform in the next job, which may require different skills.
What are the 2 main dimensions in annual performance evaluations
Grabner & Moers (2013b): Managers’ Choices of Performance Measures in Promotion Decisions: An Analysis of Alternative Job Assignments
- Objective performance (job performance)
- Subjective performance (skills development) / competence development.
Why is subjective assessment more predictive of future performance than objective performance for dissimilar jobs?
Grabner & Moers (2013b): Managers’ Choices of Performance Measures in Promotion Decisions: An Analysis of Alternative Job Assignments
The reason is that with dissimilar tasks between hierarchical levels, productivity in the current job becomes less informative, since the ability to master the current job becomes less related to an employee’s ability to perform well in the next job. Skills development focuses on abilities that may not be directly related to current performance but are essential for succeeding in new tasks or roles.
Why is subjective assessment weighted more in promotion decisions for dissimilar jobs?
The reason is that with dissimilar tasks between hierarchical levels, productivity in the current job becomes less informative, since the ability to master the current job becomes less related to an employee’s ability to perform well in the next job. Skills development focuses on abilities that may not be directly related to current performance but are essential for succeeding in new tasks or roles.
The subjective assessment is more predictive of future performance if the next job is dissimilar. This means that subjectiveness also becomes the focus of promotion decisions. With similar jobs, the focus is more on objective performance.
What is the critical assumption in this paper?
The subjective assessment is more predictive of future performance if the next job is dissimilar. This means that subjectiveness also becomes the focus of promotion decisions. With similar jobs, the focus is more on objective performance.
The findings in this paper can only be true if sorting is more important than incentives in this context. In other words, promotions are primarily used to assign employees to new roles based on their potential abilities, rather than simply rewarding their current job performance.
On which do you want to focus if you use promotions for incentives?
The findings in this paper can only be true if sorting is more important than incentives in this context. In other words, promotions are primarily used to assign employees to new roles based on their potential abilities, rather than simply rewarding their current job performance.
If promotions have an incentive focus, you want to use only objective performance.
What are economic determinants and what can they be used for?
Core et al. (1999): Corporate governance, chief executive officer compensation, and firm performance
Economic determinants are factors of firm size and performance which are related to efficient contracting, they can explain variance in CEO compensation levels. According to efficient contracting larger firms require better managers, and hence pay higher compensation.
What is a blockholder and why do they have a positive effect on CG?
Core et al. (1999): Corporate governance, chief executive officer compensation, and firm performance
A blockholder is someone with >5% shares, positive for CG since he has a large stake. He is more concerned, so professional governance by being critical, which is unattainable for retail investors. They have strong financial incentives to monitor management actively and can exert pressure on management to act in the best interest of shareholders.
With what is good and weak CG in line with?
Core et al. (1999): Corporate governance, chief executive officer compensation, and firm performance
Economic determinants are consistent with efficient contracting, larger firms pay CEOs more. Indicators of weak CG are in line with rent extraction, powerful CEOs can extract higher compensation if CG is weak since they get limited push back from good CG.
WHat is the problem with this paper?
Core et al. (1999): Corporate governance, chief executive officer compensation, and firm performance
Paper assumes that weak CG leads to lower performance, however weak CG might not be a problem. CG is a logical response to agency problems, so weak CG might suit certain firms (example #police in the area).
What is information integration and what is its advantage and disadvange?
Andreicovici et al. (2024): Trade Secret Protection and the Integration of Information Within Firms
The extent to which different parts of the firm are connected to the system allowing access to information. Advantage is improved decision making under all information in 1 EMS, but downside is increased risk of information leakage.
What is the association between trade secret protection and internal information integration?
Andreicovici et al. (2024): Trade Secret Protection and the Integration of Information Within Firms
Trade secret protection laws reduce the cost of information leakage for the firm. The lower costs stimulates internal information integration.
What is the relation between trade protection laws and increased decision making quality?
Andreicovici et al. (2024): Trade Secret Protection and the Integration of Information Within Firms
Trade secret protection laws –> EMS integration –> increased decision making quality
There is no direct effect of the laws on decision making, it goes through the EMS integration
The laws result in better EMS integration, which results in higher quality of decision making.
What are the results of higher options in managers?
Coles et al. (2006): Managerial incentives and risk-taking
Higher options encourage managers to take more risk through riskier strategies, with more R&D, less CAPEX, less diversification and more focus strategy and increased leverage.
