Management Papers

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Journal Article

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The Quarterly Journal of Economics





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We present evidence from a firm level experiment in which we engineered an exogenous change in managerial compensation from fixed wages to performance pay based on the average productivity of lower-tier workers. Theory suggests that managerial incentives affect both the mean and dispersion of workers' productivity through two channels. First, managers respond to incentives by targeting their efforts towards more able workers, implying that both the mean and the dispersion increase. Second, managers select out the least able workers, implying that the mean increases but the dispersion may decrease. In our field experiment we find that the introduction of managerial performance pay raises both the mean and dispersion of worker productivity. Analysis of individual level productivity data shows that managers target their effort towards high ability workers, and the least able workers are less likely to be selected into employment. These results highlight the interplay between the provision of managerial incentives and earnings inequality among lower-tier workers.

Copyright/Permission Statement

This is a pre-copyedited, author-produced PDF of an article accepted for publication in The Quarterly Journal of Economicsfollowing peer review. The version of record Oriana Bandiera, Iwan Barankay, Imran Rasul; Incentives for Managers and Inequality among Workers: Evidence from a Firm-Level Experiment, The Quarterly Journal of Economics, Volume 122, Issue 2, 1 May 2007, Pages 729–773, is available online at:


managerial incentives, targeting, selection, earnings inequality



Date Posted: 27 November 2017

This document has been peer reviewed.