How Bad is a Pay Cut? And Why?
4:10 pm - 6:10 pm
The Oliver E. Williamson Seminar on Institutional Analysis features current research of faculty, from UCB and elsewhere, and advanced doctoral students who are investigating the efficacy of economic and noneconomic forms of organization. In this seminar, an interdisciplinary perspective–combining aspects of law, economics and organization–is maintained. Markets, hierarchies, hybrids, bureaus, and the supporting institutions of law and politics all come under scrutiny. The aspiration is to progressively build towards a new science of organization.
The OEW Seminar meets on Thursdays from 4:10 – 6:00 pm in room C325 Cheit Hall. Outside speakers normally meet with interested students from 3:00 – 3:45 pm in the IBI Conference room located in room F402 (in the Faculty Wing of the Haas School).
For faculty and students wishing to schedule an appointment, or for more information on the Oliver E. Williamson Seminar, please contact Sandria Frost at firstname.lastname@example.org.
For more information including past seminar schedules please click here.
Fall 2015 Schedule
Title of Talk/Paper
|How Bad is a Pay Cut? And Why?
Pay cuts are believed to be detrimental for firms, but field evidence is scarce. We examine employees‘ response to a permanent pay cut in an internationally operating personnel search firm. The pay cut was introduced by the firm’s headquarter with a view to standardizing the reward system across divisions in Germany, but it only affected some of the divisions, while the reward system in others remained unchanged. This pseudo-experimental setting allows to identify strong negative effects in employees’ output (the number and value of contracts sold) in the range of 30% and higher. The effect is much stronger for the historically more productive employees while the less productive employees show no reaction. The pay cut also resulted in increased turnover of the more productive employees and more absenteeism. Using data of the management information system that registers the employees’ activities, we document the mechanisms: the affected employees reduce effort along almost all dimensions of activities such as client meetings, vacancies and candidates identified.