Seminar – Incentives & Rank Concerns in Managerial Tournaments

Dr Julia Shvets, University of Cambridge

Many firms use relative performance pay in which they rank employees. In such a setting, an employee’s actions may not only be shaped by incentives but also by concerns about their rank. This paper studies incentive and rank effects faced by store managers in a large firm where bonus is determined through a high powered tournament. The study looks at managers’ response to performance feedback, using the rules of the tournament to separate the impact of incentives from that of rank. On the margin, findings show that managers ignore incentives, but respond to rank. Their response suggests desire to catch up: when managers get a bad rank on either profit or service, they respond by improving performance. Furthermore, the study shows that managers achieve these improvements by making corresponding changes to labour variables, their main levers of control.

Speaker bio

Dr Julia Shvets is a Senior College Lecturer in Economics at Christ’s College, Cambridge and a member of Empirical Microeconomics Group at the Faculty of Economics, University of Cambridge.

Julia is a microeconomist who is interested in what drives human beings. She uses data on individual decisions to gather evidence on often hidden forces that shape people’s actions. For example, she has shown how a judge’s decisions can depend on who had appointment the judge; and how politicians’ decisions can change when the pressure to get re-elected falls. Currently, in collaboration with a large firm, Julia is studying behaviour of managers, using historical and experimental data. She lectures behavioural and experimental economics at the University of Cambridge.

Julia was born in Soviet Russia, and received her undergraduate degree from Auburn University in Alabama and a PhD from the London School of Economics and Political Science. She first came to Cambridge as a Junior Research Fellow at Corpus Christi College. She has also worked at an economic consultancy in London and New York, and in a team of policy advisors to the Russian government.