Promotions, Turnover, and Performance Evaluation: Evidence from the Careers of Division Managers

Abstract

We study turnover and promotions of division managers in multidivisional firms. Turnover is negatively related to divisional accounting performance, positively related to industry performance, but not significantly related to firm performance or the performance of other divisions. Consistent with tournament theory, promotions are significantly related to whether one division is performing better than others, but are not significantly related to the magnitude of any performance difference. A simple performance metric, divisional ROA, appears more closely related to job allocation decisions than several alternatives. Our evidence is consistent with the hypothesis that accounting information is used by firms when evaluating managerial personnel.

Internal managerial promotions: Insider incentives and CEO succession

“…Lazear and Rosen (1981) describe a model where multiple senior managers compete to be promoted to CEO, thus creating competitive tournament incentives. We call this model, which is empirically studied in Kale et al (2009);Agrawal et al (2006); Cichello et al (2009) andBognanno (2001), a tournament-incentive model. Alternatively, Vancil (1987); Cannella and Shen (2001), Fee and Hadlock (2003) and Naveen (2006) study a promotion model where a single candidate is promoted as the CEO successor several years prior to becoming CEO.…”

The Good or the Bad? Which Mutual Fund Managers Join Hedge Funds?

“…The first strand investigates internal signals affecting the retention and promotion of managers (e.g., Weisbach 1988;Fee, Hadlock, and Pierce 2006;Lehn and Zhao 2006;and Cichello, Fee, Hadlock, and Sonti 2009). The asset management profession provides a unique context for labor market research with a well-tracked investment performance for individual fund managers (e.g., see Khorana 1996;and Chevalier and Ellison 1999).…”

Subjectivity in Professionals' Incentive Systems: Differences between Promotion‐ and Performance‐Based Assessments

“…In two experiments, experienced professionals made subjective assessments that were consistent with our theory‐based predictions. By finding that promotion prospects improve with behavior that does not improve and might even negatively affect current performance assessments, this paper extends the understanding of promotions beyond the idea that promotion necessarily is the consequence of superior performance indicators (Cichello et al ; Ederhof ). Moreover, our results provide insights into the assessment and reward systems of professionals.…”