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It's not what you pay, it's the way that you pay it and that's what gets results: jockeys' pay and performance

Fernie, Sue and Metcalf, David (1999) It's not what you pay, it's the way that you pay it and that's what gets results: jockeys' pay and performance. Labour, 13 (2). pp. 385-411. ISSN 1121-7081

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Abstract

Management scholars and economists have recently set out the requirements of a system to elicit good performance when it is necessary to align the interests of the principal and agent. We analyse pay and performance in an occupation — jockeys — replete with moral hazard possibilities. We are able to do this because, most unusually, a measure of pure individual performance exists for an unbalanced panel of some 50 individuals for 8 years. Three hypotheses are tested. First, in line with classic agency theory, we expect monitoring mechanisms and incentive contracts to be used to align the interests of principals and agents. Second, pay and performance should be positively associated, subject to the first hypothesis being confirmed. Third, a limited number of jockeys were paid via an alternative mechanism involving very large non-contingent retainer fees. This serves as our counterfactual payment system. In line with agency theory we expect worse performance under such a system than under an incentive contract. The three hypotheses are confirmed: incentive contracts generate superior performance to non-contingent payment systems. Our evidence suggests that 'it's not what you pay it's the way that you pay it … and that's what gets results'.

Item Type: Article
Official URL: http://www.wiley.com/bw/journal.asp?ref=1121-7081
Additional Information: © 1999 Fondazione Giacomo Brodolini and Blackwell Publishers Ltd
Library of Congress subject classification: H Social Sciences > HM Sociology
Sets: Departments > Management
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 17 Feb 2010 16:26
URL: http://eprints.lse.ac.uk/7226/

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