Entrepreneurs’ Education and Different Variable Pay Schemes in Italian Firms

Abstract

In this paper, we investigate the influence of the education of entrepreneurs, which we hypothesise to be a signal of talent, on the adoption of variable pay (VP) schemes in the Italian economy.We estimate to what extent differences in the diffusion of VP between Italian firms reflect differences in the quality of entrepreneurs. Our estimates, which we obtained by taking both endogeneity and unobserved heterogeneity into account, validate hypotheses about the direct positive effects of entrepreneurs' education on the adoption of VP schemes. Furthermore, we ascertain the role of entrepreneurs' education by examining its influence on the choice between different types of VP bonuses at the individual, group, or establishment levels. Our results suggest that highly educated entrepreneurs are more likely to use individual or collective forms of VP schemes at the establishment level rather than team VP incentives. JEL Classification: J33; I20

The impact of incentive schemes on employee productivity in the South African workplace

“…The sign and magnitude of the estimates for the non-finance-based incentive scheme-employee productivity relationship confirm, firstly, the importance of non-financial incentive schemes for lower-skilled employees (Franceschelli et al, 2010), secondly, the importance of consultative committees as a non-financial incentive scheme, especially for lower-skilled employees (Kato, 2006), thirdly, the existence of gender differences in terms of the effectiveness of individual non-financial incentive schemes (Brynjolfsson et al, 2000), fourthly, the importance of a greater gender spread in the awarding of non-financial incentive schemes (Conyon et al, 2004), and, finally, that the magnitude of the positive link between non-financial incentive schemes and employee productivity is more prevalent in bigger firms and that the impact of geographical differences on the sign and magnitude of the non-financial incentive scheme-employee productivity relationship is in real terms very small (Black et al, 2001;Damiani et al, 2013;Dessein et al, 2006). For the dimensional relationships of the ITC spending-employee productivity link the parameter estimates are all positive.…”

“…The dimensions that are employee-related concerns employee heterogeneities, skill levels and employee participation practices (Abdusalam et al, 2012;Bandiera et al, 2009;Damiani et al, 2013;Franceschelli et al, 2010;Hodgkinson, 2002;Kato et al, 2002;Pompei, Damiani & Ricci, 2013;Ude & Coker, 2012), while those dimensions that are firm-or industry-related concern specific firm and industry characteristics, the complementarity of incentive schemes, the structure of employee-management relations, inter-industry competition, technical innovations, increasing uncertainty within firms and industries, information and communication technology and the differences between financial and non-financial incentives (Aoki, 1990;Ben-Ner et al, 1995;Black et al, 2001;Brynjolfsson & Hitt, 2000;Dessein et al, 2006;Damiani et al, 2013;Gielen et al, 2009;Ichniowski, Shaw & Prennaschi, 1997;Poutsma et al, 2012).…”

“…In terms of employee heterogeneity, different skill levels and the implementation of the different kinds of incentive schemes, the research literature indicates that i) non-financial incentive schemes have a greater positive impact on the productivity levels of lower-skilled employees, while finance-based incentive schemes have a greater positive employee productivity impact for higher-skilled employees (Abdulsalam et al, 2012), ii) males are in general the main beneficiaries of incentive schemes, and for this reason such schemes have a greater impact on employee productivity spill-over effects (Hodgkinson, 2002), iii) the awarding of incentive schemes to non-permanent employees is limited and the impact on employee productivity in this regard is insignificant (Kato, et al, 2012), iv) incentive schemes that are linked to continuous firm-sponsored training (which acts as a commitment device) have a significant positive impact on employee productivity (Damiani et al, 2013), v) the adoption of performance-linked incentive schemes are positively related to higher employee skill levels and in this regard the presence of higher-skilled employees increases the probability of the adoption of individual-based financial incentive schemes (Pompei et al, 2013), vi) a significant positive correlation between employee motivation and the adoption of incentive schemes was found to be prevalent in workplaces that are more gender and racially diverse (Ude et al, 2012), vii) team-type incentive schemes are less preferable due to the fact that these kind of schemes are prone to 'free-riding' effects that are the result of an adverse selection process in which lowerskilled employees are teamed up with higher-skilled employees (Bandiera et al, 2009), viii) there is an increasing tendency for bigger firms to specifically link the kinds of incentive schemes (such as profit-sharing schemes and stock options) to firm performance (Jones et al, 2008) and ix) the adoption of non-financial social incentives (such as additional social infrastructure for employees) tends to ease the concerns over 'free-riding' (Franceschelli et al, 2010).…”

“…In terms of the impact of firm and industry characteristics, the complementarity of the different incentive schemes, the structure of employee relations and the impact of inter-industry competition, technical innovations and firm uncertainty on the incentive scheme-employee productivity relationship, research results indicate that i) firms that rely on greater levels of employee participation in decision making would tend to adopt greater levels of incentive schemes (Dessein et al, 2006), ii) organisational structures within firms and industries determine the kind of incentive schemes that are adopted and also indirectly the magnitude of the impact on employee productivity (Blasi et al, 2006), iii) complementarities of workplace practices dictate the simultaneous introduction of non-financial and financial incentive schemes and in this regard the introduction of the incentive schemes will ultimately impact on firm strategy, firm structure and employee-productivity (Dessein et al, 2006), iv) labourmanagement relationships adopted within firms and between industries differ and the introduction of particular incentive schemes and the ultimate impact on employee productivity Journal of Economic and Financial Sciences | JEF | July 2015 8(2), pp. 633-647 will depend on the kind of labour-management regime that is adopted within a particular firm (Black et al, 2001), v) employee-management structures that are more unionised tend to adopt group incentive schemes (these group incentive schemes have a limited impact on employee productivity due to the problem of 'free-riding' and the specific adoption of performancerelated incentive schemes are in general not linked to firm-specific characteristics, as larger firms tend to adopt a higher level of performance-related incentive schemes that have a greater impact on employee productivity) (Gielen et al, 2009), vi) the positive correlation between firm size and performance-related incentive schemes is in the main explained by the fact that the cost of implementing these kinds of incentive schemes for bigger firms is spread over a larger number of employees (Damiani et al, 2013), and vii) increases in inter-industry competition do enhance the adoption of performance-linked incentives in order to increase the level of employee productivity (greater levels of technical innovation and increasing firm uncertainty result in a reduction of the implementation of performance-linked incentives) (Damiani et al, 2013).…”